Liam is applying for a disability income replacement insuranse polie. As a resi estate agent ha income varies significantly each year, based on the market and seasonal demand When se with his insurance agent to assess his eligibility and coverage limits, what documentation Liam prepare to ensure an accurate evaluation by the insurer? Select one: O a. His last 5 years of T4 slips illustrating his annual income O b. His most recent T4 slip and CRA Notice of Assessment from the past year O c. A letter from his primary client confirming his projected income for the coming yea O d. Copies of his last 3 years of T1 Income Tax Returns and CRA Notices of Assesamen
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John Wilson is a forty-year-old computer programmer, husband, and father of four. He wants to use the capital retention approach to determine how much life insurance he should purchase. Because of his $105,000 salary and the need to care for the family's four children, his wife does not work outside the home. The family's current annual living expenses are approximately $75,000, including $8,000 in annual IRA contributions. John prefers to use the capital retention approach (CRA) so that he can be reasonably assured that his family will not exhaust the proceeds of a life insurance policy. However, he also wants to consider the possible reduction in expenses and apply a 70 percent replacement ratio to the calculation. a. Calculate John's insurance need using the capital retention approach and an after-tax discount rate of 5.5 percent (assume end-of-period payment of benefits). b. Calculate John's insurance need using the human life value approach (HLV), an after-tax discount rate of 5.5 percent, and a remaining working life of twenty-five years (assume end-of-period payment of benefits). c. After your presentation, John was bewildered about why the HLV and CRA calculations resulted in significantly different insurance needs. Using the two formulas as a guide, explain to John why this result occurred.
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