Ritu who is 28 and Daniel who is 32 years old, have just welcomed their new, healthy baby boy Liam into this world. They are a happy family, but the financial responsibilities of having a son have sunk in and they need help to figure out what to do to ensure Liam is taken care of should anything happen to them.  They called their branch and were connected with the Financial Planner who has met with the couple and collected the following information: 

 

1. Assess Ritu and Daniel's current financial situation using all applicable financial formulas and ratios. Then complete a SWOT analysis to determine the couple's financial strengths, weaknesses, opportunities, and threats. How are they doing financially?

 

 Ritu and Daniel need to determine the amount of life insurance they require to minimize financial hardship and ensure Liam is looked after if anything ever happened to one or both of them. If one spouse passed, they would want insurance proceeds to eliminate any debt and provide for Liam until age 25 as if both were still alive (ie. sports, activities, education). Currently Daniel's income is greater than Ritu's and is projected to be that way for the foreseeable future, therefore lost family income should be addressed if Daniel passed away at a rate of 50% of his current total income. Daniel's brother and his wife have agreed to be Liam's guardian should both Ritu and Daniel pass away prior to Liam turning 25. Their wishes are that Liam has an education fund of $75,000 and receives annual income of $25,000 until age 25.

 

2. Ritu and Daniel would like the team to assess the amount of life insurance they would need if: 1) Ritu passed away 2) Daniel passed away and 3) both pass away. 

Description Annual Earnings Home Mortgage Condo Fees Property Taxes Line of Credit ($15,000) Car Student Loans Savings Account Daniel's RRSP Ritu's RRSP Group life insurance policies Credit card limit of $10,000) General Expenses Assets $425,000 $10,000 $5,000 (joint) $25,000 (contributing $2,000/vx) $15,000 (contributing $1500/xx) Liabilities $320,000 10,000 (used to reno the baby's room) $20,000 Paid in full monthly Income Daniel $75,000/yr +up to $10,000/yr bonus) Ritu $50,000 (currently on mat leave so only receiving half her salary) Couples tax rate 21% Daniel $75,000 (employee benefit) Expenses/Payments $1,680/mo $400/mo $200/mo 500/mo $500/mo Minimum payment 5%/mo Groceries $400/mo Personal care/ Baby $150/mo Miscellaneous Expenses (dining out, travel, entertainment $400/mo