Tommy and Heather live in Toronto with their four boys, Mick, Jagger, Jimi and Hendrix. Their children range in age from 4 to 10 years. Tommy and Heather both work in the entertainment industry and make decent incomes.

Tommy earns an annual salary of $250,000 and Heather earns $400,000. Tommy lives a fast-paced life and Heather worries that this could have a negative impact on his health. Heather has asked Tommy to take the time to review their current financial situation with her and make some plans for their future.

Tommy and Heather have investments worth $2,700,000. They live an extravagant lifestyle, with a mortgage of $3,200,000 and monthly living expenses of $22,000. They want only the best for their four boys and plan to save $600,000 for their educations. Estimated funeral expenses for Tommy are $50,000. It is his wish to go out in style when his day comes. Tommy and Heather pay off their credit card balances every month and paid cash for their vehicles. Tommy wants to make sure that Heather and the boys will have adequate financial support and no debt if he were to die suddenly.

Required:

1. Calculate Tommys life insurance requirements using the family needs method. Show your calculations for full marks. [6 points]

1. Calculate Tommys life insurance requirements using the income replacement method. Show your calculations for full marks. [3 points]

1. Quantify the variance between the insurance requirements calculated in parts a and b. Why might there be a large discrepancy in the amount when utilizing the two different methods? [3 points]