Question

Nicole is aged 38 and Keith is aged 42. Nicole works a stay-at home mum whilst Keith runs his own marketing business from an inner suburban office, which produces an average net profit of $150,000 before tax. They have two sons, aged 5 and 8 whom they expect will remain dependent until age 21 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 $950,000, which is subject to a mortgage of $375,000. They also have an outstanding credit card debt of $6,000. Both Nicole and Keith 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 Nicole or Keith, they estimate death and medical expenses to cost around $12,000. Keith currently has life cover of $150,000 in his superannuation fund (his current superannuation fund balance is $225,000) whilst Nicole has no life cover, also they have no other personal insurances. Keith’s father passed away recently at age 67 as a result of heart disease, which seems to be a historical problem in Keith’s family.

List the potential risks faced by the couple in terms of their assets and income

Answer 1

	Annual Expenses	Annual Income	Home Value	Mortgage Loan	Credit Card Debt
	Living	56400		950000	375000	6000
	Mortgage payment	27600
	Educuation (160000/4)	40000
	Maximum Annual Exp.	124000	150000
	It can be estimated as calculated above that annual income of couple is limited to $ 1,50,000, while expected
	expenses is $ 1,24,000 excluding extra ordinary expenses is not enough to face the extraordinary or unusual
	expenses. However keith has taken insurance cover of $ 150000 in his superannuation cover but seems not
	enough and nicole is without insurance cover.
So, Potential Risk faced by a couple in terms of assets and income are:
(i)	Lack of enough life insurance cover of couple
(ii)	Lack of property insurance cover of mortgage home
(iii) Lack of liquidity as no short term investment
(iv)	No other income arrangement
(v)	Fear of unusual death as historical problem
(vi)	Fear of loss of business