FINA 307 Risk Management and Estate Planning : Six-Step Planning Process

FINA 307 Risk Management and Estate Planning : Six-Step Planning Process


Team assignment

The assignment is a Group Assignment. If you want to create your team, you need to add your names to the group in eCentennial. Do this before September 19. The system will assign you to a random group on September 20 if you do not belong to a group.

I will accept draft of your assignment by October 31. I strongly recommend that you submit a draft as history has shown those who do, score much higher marks on the assignment.

Title: The Six Step Planning Process Related to Risk Management

Pick a young married couple of your choice (let’s call them John 40, and Ann 38) with one small child aged 5 and go through the six-step planning process with them as it relates to risk management.

I have provided the family’s income and expenses plus their assets and liabilities. Use the tables attached to tell me their story.

Make John the breadwinner and Ann stay at home mom who will take care of the kid.

What are their needs for Risk Management (insurance)? Because John is the only person working outside the home, what will happen to the family if John dies today? How much insurance they need? Expect that the child need taking care of until they finish university at age 22. You need to do an insurance Needs Analysis and come up with exact dollar amounts as to how much insurance they need. To come up with a dollar amount, you also need to do an Education Needs Analysis for the child’s post secondary education.

Steps to take

  • Use the attached Income Statement, Annual Expenses and Assets and Liabilities for your calculations.
  • Come up with their annual expenses today. (Already Provided)
  • How much excess/shortfall of income they have now?
  • Come up with their assets. (Already Provided)
  • If John dies today, they need money for the next how many years? (Assume money is needed only until both kids finish University (n Years) at which point Ann remarries)
  • You need to calculate their annual needs (expenses) adjusted for inflation. Use the 5 function to calculate their needs for the next n years.
  • Assume Inflation of 3% and Rate of Return of 5% and education inflation of 9% when needed.
  • Add up all their financial needs {pay off mortgage (One time payment), pay for school (10-15 years from now, paid during 4 years), pay for their annual expenses for the next n years and whatever else you think they need}.
  • Buy enough insurance that pays them for these calculated amounts less the assets that they have now (Which assets are available for this purpose? Which ones they can sell now or do not need?).

In each step you must have at least one important OBJECTIVE and clarify how you achieved it. You are trying to answer ONE QUESTION in each step and each question starts with a “How”. For example: How do you establish client-planner engagement with Ann and John?

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