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Advise nick about whether his current life policy

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Reference no: EM132622065

4Assumptions at Nick's death:

Sue (36 ANB) and Nick (40 ANB) are married and have a son, Alex. Nick would like to ensure that Sue can maintain her current lifestyle in the event of his dies. Sue does not work and Nick is a building contractor.

  • Nick earns R60 000 per month and estimates that, upon his death, Sue will require capital that will replace 60% of his current income.
  • He would like this to be calculated until Sue's 90th birthday.
  • Nick already has a life policy of R8 500 000 with Sue as the sole beneficiary. The policy
  • proceeds will be available immediately after Nick's death.
  • He would like to provide for a lump sum of R3 500 000 to be available for Alex's education
  • - no provision has been made for the lump sum to be available at Nick's death.
  • He would like the income to grow in line with inflation at 8%.
  • He assumes an annual investment growth rate of 13%.

REQUIRED:

  • Advise Nick about whether his current life policy will be sufficient to cover his family's financial needs - support your answer with calculations.

Reference no: EM132622065

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