Reference no: EM132910400

James is aged 42 and Olivia is aged 38. Olivia works a stay-at home mum whilst James runs his own consulting firm from an inner suburban office, which produces an average net profit of $150,000 before tax. They have two children, aged 8 and 10 whom they expect will remain dependent until age 24 at which time the living expenses will decrease by $13,000 p.a. for each child when they leave home. They own their own house worth $1,000,000, which is subject to a mortgage of $275,000. They also own an investment property worth $900,000, which is subject to a mortgage of $650,000. They also have an outstanding credit card debt of $12,000. Both James and Olivia own their own cars. The couple's living expenses total $84,000 p.a. including payment of a $27,600 p.a. annual mortgage payment. The couple would like to send the children to a private school from years 9 - 12 which is expected to cost $160,000 in total. In event of death of either James or Olivia, they estimate death and medical expenses to cost around $12,000. James currently has life cover of $150,000 in his superannuation fund (his current superannuation fund balance is $225,000) whilst Olivia has no life cover, also they have no other personal insurances. James' father passed away recently at age 67 as a result of heart disease, which seems to be a hereditary problem in James' family.

Problem a) What type of insurance policies would you recommend for James and Olivia to protect their personal risks? Discuss the merits for each of the types of insurance policies.

Problem b) Calculate how much additional life insurance might be recommended for James? Assume that coverage is required through to current life expectancy (85 for females, 81 for males). Further assume the reinvestment rate is 8% per annum.

Problem c) You note that James' existing life cover is in his superannuation fund. Discuss the advantages and disadvantages having his life cover within his superannuation fund as against having it in his own name?