Rachel, aged 40, and Simon Sweeny, aged 42, have recently finished building their 4-bedroom and 2-bathroom house. Their house is valued at $1,000,000, belongings are valued at $250,000 and they have a mortgage of $750,000, with a 25 year amortization. They have two children, Mia aged 4 and Jacob aged 2. Simon works as a surveyor where he provides advice on converting farmland into new property developments. Rachel works as a nurse on the paediatric ward at the local hospital. Simon earns $75,000 p.a. and Rachel earns $80,000 p.a.

They own one car, which is predominantly used by Rachel to go to and from work. Simons company provides a car when he needs to leave the office. At the moment, they have used up all of their savings to pay for their house. However, Simon has saved $80,000 in a RRSP and Rachel has employer pension plan (RPP), which is a defined contribution plan with a $125,000 balance.

Simon and Rachel manage to save $2,000 a month after paying for their household expenses. They have come to you for advice regarding insurance needs as Simon has the opportunity to purchase insurance through his work. Assume a real after tax discount of 3% p.a.

Required:

1. Complete an assessment of the pure risks that Rachel and Simons face. You should identify 2 personal risks, 2 property risks and 2 liability risks.
2. Simons workplace offers two disability insurance options. An any occupation coverage (cheaper) or an own occupation (expensive). Using examples, explain to Simon the difference between these two policies and recommend one that he should choose.
3. Use the income replacement method to calculate how much life insurance Simon should buy. Explain one problem with this method.
4. Simon is deciding between purchasing life insurance or simply saving money to provide for his family in case he passes away. Explain to Simon the risk management technique underlying Simon's strategies and what you would recommend. Use calculations to support your answer.