Noah and Kati are 43 and 45, respectively. Noah and Kati have two children. Charlotte is 16 and is learning to drive. She is planning to study forensic science at university. Noah and Kati plan to support Charlotte through her undergraduate studies and have made contributions to a RESP. They expect Charlotte will be financially independent by age 24. Their youngest daughter, Sonya, is 11. Sonya has impairments and requires assistance. Sonya will be unable to work and will be financially dependent on her parents for the rest of her life. Sonya attends public school and participates in other community programs. Sonya has a dog named Xena.

Noah is a correctional officer working at an adult correctional institution. He earns $120,000 gross annually. His average tax rate is 27%. Noahs place of employment also provides him with EHC for employees and their families, disability coverage up to 80% of income, a defined benefit pension plan and life insurance 2x his salary.

Kati works as a chartered professional accountant. Years ago, Kati incorporated her own business. Kati mainly provides tax planning and business succession planning to her clients. Working for her own business has allowed Kati to have a flexible work schedule. The flexible schedule helps Kati to support and provide care to the children. Katis average annual salary paid from her business is $90,000 gross. Katis business does not provide her any employee benefits. Her average tax rate is 22%.

Noah and Kati purchased 25 term life insurance 17 years ago before Charlotte was born. Each of their term insurance policies have a face value of $300,000. They have named each other as beneficiary on the policies. They have not thought much about their life insurance coverage since. Recently they had a friend of the family with young, dependent children unexpectedly die and now that family is trying to work through their family finances. Since, helping this family deal with the unexpected event, Noah and Kati have started to discuss their own family situation and their potential risks and exposures.

Noah and Kati live in a 5 bedroom, 4 bathroom house located in Cambridge, Ontario. The house is valued at $1.3 million. They have an outstanding mortgage of $650,000 on the house. They have comprehensive insurance coverage on the house with liability insurance of $500,000 and a deductible of $500.

Kati inherited a family cottage. With Katis flexible schedule and ability to work remotely, Kati and the girls spend most of the summer break at the cottage. Noah works shift work so he usually drives back and forth from the cottage on days he works. Occasionally, he will stay at the house during the week he is working. If he does not stay at the home, he will walk through the house and check that there are no issues before returning to the cottage. The girls usually swim in the pool most days. Since they spend most of their summer at their cottage, they often have other family, friends or friends of the girls come and stay for a visit. They have comprehensive insurance coverage on the cottage with liability insurance of $500,000 and a deductible of $500. Per Katis will, the family cottage will pass to Charlotte.

Noah and Kati have two vehicles. Noah mainly drives the pickup truck and Kati drives the SUV. They have comprehensive coverage on both vehicles with liability of $500,000 each and a deductible of $1,500.

Noah and Kati invest most of their investment in stocks. They diversify their holdings between Canada and the US holdings. Throughout the years they have seen the market go up and down; however, they have not changed their investment approach as their time horizon is mostly for long-term use.

The following is their Net Worth Statement:

Noah and Kati Net Worth Statement June 2021
Assets Joint Chequing account Joint Savings account Noahs TFSA (1) Katis TFSA (1) Joint Non-registered account Katis RRSP (2) RESP (3) Katis SUV Noahs Pickup Truck Family Cottage (4) Home Total Assets	9,000 24,500 26,000 28,500 130,000 80,000 47,000 15,000 19,500 925,000 1,300,000 2,604,500		Liabilities Noahs Credit card, 19% Katis Credit card 15% Joint Credit line Mortgage - Home Total Liabilities	12,250 9,750 33,000 650,000 705,000
			Net Worth	1,899,500
Notes: TFSAs purpose is for emergency fund. Noah and Kati are the named beneficiaries on each other accounts. Sonya is the named beneficiary. Account is owned by Noah and Kati jointly with the beneficiary being Charlotte. Kati solely on the title.

Noah and Kati continuously review their monthly expenses. On average, they have a monthly cash flow surplus of $2,500.

Assumptions:

1. Use the average benefit amount for all CPP figures.
2. CPP benefits will only be payable until age 18 for the children.
3. Age of retirement: Noah 65 years, Kati 65 years.
4. Age of death: Noah 90 years; Kati 95 years; Sonya 60 years.
5. All of Charlottes post-secondary education costs will be covered by the RESP.
6. Use a real after-tax discount rate of 2% for your calculations.
7. Use the average tax rate to determine their after-tax incomes.
8. The estate will be taxed at the same rate as the survivor.
9. Round calculations to nearest dollar. Round insurance needs recommended amount to the nearest hundred thousand round lot.

Questions:

1. Calculate insurance needs for Noah and Kati using the income approach. You will need to find the CPP benefit amounts for the calculation. Use current figures, not the ones from the textbook. (30 marks)

2. Calculate insurance needs for Kati using the expense approach. You will need to find the CPP benefit amounts for the calculation. Use current figures, not the ones from the textbook. (30 marks)

Assumptions for expense approach - Kati:

1. Noah will need an additional $20,000 p.a. after-tax till his retirement if Kati dies tomorrow. During retirement Noah will need an additional $15,000 p.a. after-tax till his death.
2. Sonya will need an additional $24,000 p.a. after-tax till her death if Kati dies tomorrow.
3. They will sell Katis SUV.
4. The family will stay in the home and the mortgage will be paid from insurance proceeds at once.
5. Katis debts and joint debts will be paid from insurance proceeds at once.