MTHEL131 Lecture 3: Lecture 3
19 Oct 2016
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LECTURE 3
HOW MUCH COVERAGE?
[ex. Paul and Lillian with 2 children (3 and 4 years old)]
Family Income
Paul $36 000
Lillian $36 000
Total $77 000
If Paul dies, then his living expenses are gone hence Lillian won’t need the full $6000 of the
monthly family income and will only need around 60-80% (she will need $4000)
- But Lillian will probably not go back to work full time:
Scenario A:
$4000 - $3000 = $1000 [shortfall]
Scenario B:
$4000 - %1500 = $2500 [shortfall]
How long?
$1000 for 10 years $2500 for 10 years
*****refer to chart from handouts [focus on +3 because historically the difference between
inflation and investment rates is usually +3)
Scenario A
If Lillian invested $104 020 and takes $1000 every month with a raise of inflation every year
then in 10 years, the money will be gone.
Scenario B
Then Lillian would need to invest 260 050 at Paul’s death
Life: 307.15 $307 150
1. Immediate needs [at death of either Paul or Lillian]
- Funeral $15 000
- Mortgage $200 000
- Car, student, credit card loan $35 000
- Emergency fund $20 000
- Education $200 000
- Total $470 000
2. Ongoing needs
- $1000/ month for 10 years =>104 020
574 020
- the amount of cash they will need to maintain their lifestyle in case of Paul’s death (574 020)
- minus group life at work -72 000 [this is Paul’s]
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Paul and lillian with 2 children (3 and 4 years old)] If paul dies, then his living expenses are gone hence lillian won"t need the full of the. 000 monthly family income and will only need around 60-80% (she will need ) But lillian will probably not go back to work full time: *****refer to chart from handouts [focus on +3 because historically the difference between inflation and investment rates is usually +3) If lillian invested 020 and takes every month with a raise of inflation every year then in 10 years, the money will be gone. Then lillian would need to invest 260 050 at paul"s death. 150: immediate needs [at death of either paul or lillian] 574 020 the amount of cash they will need to maintain their lifestyle in case of paul"s death (574 020) Paul would need that much coverage for lillian the beneficiary.
