Reference no: EM133272660
The Thompson family has come to you for advice on life insurance cover to protect their family. Bob Thompson, aged 48, has only ever been an artist and his spouse, Zara, aged 41, is a hairdresser. Both work full-time. They have two children: Jeremy, aged twelve (12), and Ruth, aged ten.
Bob earns $65,000 and Zara earn $75,000 and they currently save $235 per month.
a. Assume that Bob requires $540,000 of total and permanent disability (TPD) cover. Suggest an appropriate occupational definition (that is, 'any' or 'own') for TPD. Justify your suggestion.
b. If Bob was to die, Zara wants to provide monthly income of $5,250 to their family during the dependency period of their children until the youngest reaches age 18. However, when the youngest child has reached age 18, Zara would then like to cover $3,525 per month for her life expectancy (age 83) to supplement her income.
Assuming a rate of return of 8% (compounded monthly), inflation at 2.5% (adjusted monthly), what is the total capital requirement needed for income for Zara in the event of Bob's death?