You have been asked to advise on the amount of life insurance cover that should be provided for the Graham family.
Rita is 30 and is an accountant with an annual gross income of $120,000. Her husband Garry is 32 years old and self-employed, as a landscape gardener and earns a taxable income of approximately $180,000 per annum. Both work full-time and utilise childcare for their two children aged one and four. Both children will attend the local public school. The family's living expenses are $3,000 per month, which covers all their immediate needs. In addition, each parent needs $250 per month and the children require $220 per month, child care amounts to $350 per week per child until each child is of school age and then it is expected to drop to $100 per week per child for after school care. The children are expected to be dependent until they reach 21 years. Once the children are no longer dependant, it is anticipated that living expenses will fall to $2,000 per month.
Rita and Garry recently purchased their own home valued at $650,000 but still have a mortgage of $350,000. This is fixed at 5% principal and interest. Both Rita and Garry have credit cards - the total balance is $18,000. They would also like to fund their children's university education expected to be $30,000 per child. Rita has superannuation with insurance worth $250,000 and Garry has $75,000 in his superannuation account.
Calculate the level of term life cover needed for Rita and Garry using both the multiple and the needs analysis approaches. Assume funeral costs $10,000, final medical $15,000, legal $5,000 and emergency funding $25,000. Investment rate is 5% per annum. Show all workings. Assume that both Rita and Garry will need to be provided for till age expectancy of 82 years.