Risk Management and Insurance Planning

Sample Solution

  Proposal for Life and Disability Insurance for Bill and Kathy Collins Introduction Bill and Kathy Collins are a young couple who are looking to start a family. They are both healthy and financially stable, but they recognize that they need to protect their financial future in case of an unexpected event. Current Situation Bill is employed at a small family-run business as a mechanic. He earns a gross income of $107,500 per year. Kathy is self-employed as an architect. She earns a gross income of $143,000 per year.

Full Answer Section

  The Collins own a home worth $800,000. They have a mortgage of $350,000 with an amortization period of 25 years. They also have $250,000 in RRSPs and $87,000 in TFSAs. Bill has a group life insurance policy through his employer. The policy provides $100,000 of coverage for Bill and $50,000 of coverage for Kathy. Kathy has no life insurance of her own. Proposal I recommend that Bill and Kathy purchase the following life and disability insurance policies:

• Life insurance: I recommend that Bill and Kathy purchase $1 million of term life insurance for each of them. This will provide enough coverage to replace their income and pay off their mortgage in the event of their death.
• Disability insurance: I recommend that Bill and Kathy purchase $5,000 per month of disability insurance for each of them. This will provide them with income if they become disabled and unable to work.

Reasoning I believe that these policies are a good fit for Bill and Kathy because they will provide them with the financial protection they need in the event of an unexpected event. The policies are also affordable, and they will not have a significant impact on their budget. Government Plans and Benefits Bill and Kathy may also be eligible for government benefits in the event of an unexpected event. For example, if Bill were to die, Kathy would be eligible for survivor benefits from Social Security. Existing Coverages Bill has a group life insurance policy through his employer. However, this policy is only for $100,000. I recommend that Bill and Kathy purchase additional life insurance so that they have enough coverage to replace their income and pay off their mortgage. Kathy does not have any life insurance of her own. I recommend that she purchase a life insurance policy so that she has the same level of protection as Bill. Amount of Coverage I recommend that Bill and Kathy purchase $1 million of term life insurance for each of them. This is enough coverage to replace their income and pay off their mortgage in the event of their death. I recommend that Bill and Kathy purchase $5,000 per month of disability insurance for each of them. This is enough coverage to provide them with income if they become disabled and unable to work. Conclusion I believe that these policies are a good fit for Bill and Kathy because they will provide them with the financial protection they need in the event of an unexpected event. The policies are also affordable, and they will not have a significant impact on their budget. I would be happy to answer any questions you may have about these policies. Please do not hesitate to contact me if you would like to discuss this further.