Health Insurance
Read the following scenario and then use the York University (YUFA) Supplemental Insurance Policy posted in Moodle to answer the questions that follow.
Luis, a faculty member at York, had a serious accident while participating in his town’s annual cheese rolling contest. He has been unable to work for the last 9 months and has needed significant healthcare to help him recover from his injuries. He needs helping calculating his benefit reimbursements. He has an annual salary of $100,000 and disposable income of $5,200 monthly. Below is a list of all his expenses:
Physiotherapy: $7,200
Prescription drugs: $925
Qualified nursing care assistant: $25,000
A cast/split for his leg: $1,600
Naturopathic Doctor: $4,000
Chiropractor: $400
Psychotherapy: $750
- Taking into account the deductible, how much of Luis’s health care expenses will be covered by his insurance? (10 marks)
ANSWER _______________________
- If the accident happened on April 30, 2016, when did his long-term disability benefits start and how much was he paid each month for the remainder of 2016? Assume he receives disability government benefits of $715 per month. (10 marks)
ANSWER _______________________
Life Insurance (20 marks)
Anthony, 32 and Antoinette, 31 just had their first baby and want to buy life insurance. Anthony is a teacher making $82,000 per year. He has life insurance through his employer of twice his annual salary. Antoinette is an emergency room doctor making $190,000 per year. She contracts with the hospital so has no benefits. In addition to Anthony’s life insurance, they share the following financial information with you:
Anthony’s TFSA (invested in ETFs): $27,000
Antoinette’s TFSA (invested in mutual funds): $34,000
Antoinette’s RRSP: $104,000
Anthony’s RRSP: $22,000
Liquid assets (savings and chequing accounts): $39,000
In addition to replacing their income, they want to make sure they have at least $120,000 for education expenses, $50,000 for additional childcare costs, and $10,000 to cover funeral expenses.
- Using the income-based method, estimate the amount of life insurance they need to purchase for
Anthony. (10 marks)
ANSWER _______________________
- Using the needs-based method, estimate the amount of life insurance they need to purchase for
Antoinette. Ignore any government benefits. (10 marks)
ANSWER _______________________
3
Home Insurance (10 marks)
- The Evan’s family recently had a fire in the garage behind their home. They want to know how much they can expect to be reimbursed by the insurance company. Their house is currently valued at
$225,000 and their insurance, which hasn’t been updated since they bought the house 15 years ago, is still at $120,000 even though their insurance company uses the 80% Rule. The fire caused $25,000 in damage. If they have a $500 deductible, how much will the insurance company they them for the damage? (10 marks)
ANSWER _______________________
Investments (50 marks)
- Anna bought 200 shares of a mutual fund (CPR) in 2008 when the market was down. The NAV when she bought the shares was $22.60. She then bought 100 shares when the NAV was $22.90. She wants to sell all 300 shares. The shares are now selling for $26.50. Assuming an average tax rate of 20% and a marginal tax rate of 29%, how much will she owe in taxes? (10 marks) ANSWER _______________________
Amber invested $500 in shares of a mutual fund (TXN) every month starting Jan. 1, 2016. Below is the list of transactions on her account. Assume that dividends and capital gains are not reinvested and she receives the income directly. Use the table to answer the questions below.
| Date | NAV | Dividends Paid Out | Capital Gains Realized |
| 01 – 01- 2016 | $22 | ||
| 02 – 01- 2016 | $26 | ||
| 03 – 01- 2016 | $21 | ||
| 04 – 01- 2016 | $18 | ||
| 04 – 30 – 2016 | $.75/share | $1.50/share | |
| 05 – 01- 2016 | $20 | ||
| 06 – 01- 2016 | $25 | ||
| 07 – 01- 2016 | $26 | ||
| 08 – 01- 2016 | $29 | ||
| 08 – 31 – 2016 | $.81/share | $1.25/share | |
| 09 – 01- 2016 | $27 | ||
| 10 – 01- 2016 | $26 | ||
| 11 – 01- 2016 | $21 | ||
| 12 – 01- 2016 | $19 | ||
| 12 – 31 – 2016 | $.64/share | $1.26/share |
- How many shares did she buy in total? (10 marks)
ANSWER _______________________
ANSWER _______________________
5
- If the NAV is $26 on Dec. 31, 2016, what is her total holding period (shareholder) return? (10 marks)
ANSWER _______________________
- If she sells 200 shares on December 31, 2016 for $26/share (after receiving the final dividend and capital gain payments), how much will she owe in taxes on her capital gains for the year? Assume a 35% marginal tax rate and a 26% average rate. (10 marks)
ANSWER _______________________
Condo Purchase (30 marks)
Sharon and Barry’s cousins just purchased a new condo in a building they want to live in. Their cousins paid $450,000 and said their monthly condo fees are $490, property taxes are $400 per month, and insurance is $185 per month. They can qualify for a 5.0% fixed rate mortgage with a 20-year amortization period. They want to know if they can afford a similar unit in the building. Use the information below to answer questions A – C below.
Annual gross income, $108,000
Personal monthly loan payment: $150
Car Loan Payments: $775
Credit card monthly payment: $200
TFSA balances: $95,000
RRSP balances: $60,000
- Use a Total Debt Service (TDS) Ratio of 42% to determine how much of a monthly payment they can afford. (10 marks)
ANSWER _______________________
- Using the TDS ratio: If they have 20% to put down, what is the maximum amount they can pay for the house? (10 marks)
ANSWER _______________________
- Identify 3 things they may be able to do to afford the condo. (10 marks)
Retirement Planning (70 marks)
Fatima plans to contribute $10,000 each year into her RRSP and take her refund and put it in her TFSA earning 5% a year. She earns $60,000 per year and has a marginal tax rate of 26%. Her RRSP is expected to earn 9% per year.
- How much will she have in her RRSP in 20 years? Ignore inflation. (10 marks) ANSWER _______________________
- How much will she have in her TFSA in 20 years? Ignore inflation. (10 marks) ANSWER _______________________
- Rabia, single, is turning age 65 on November 1, 2017, retiring at the end of the month and will start collecting benefits in December. She has been working full-time for the past 40 years and expects to get the average monthly benefit from CPP. She expects to need $70,000 per year for the next 25 years. Because she has lived in Canada her whole life, she also qualifies to receive OAS benefits. She is not sure about GIS. If she is earning 3% on her investments, how much does she need to have saved at the end of the year to fund her retirement? (Note: You need to look up the December 2017 CPP, OAS and GIS amounts and qualifications and adjust the income accordingly.) (20 marks) ANSWER _______________________
- Melanie is 35 years old and works as an account manager for a large autoparts company. She has
$30,000 in her RRSP along with another $120,000 in her employer’s defined contribution plan. When she retires she estimates that she will be making about $100,000 and will need about 70% of that to live on. She wants to plan as though she will to 100. She has a fairly aggressive investment portfolio, but wants to be more conservative with her planning, so estimates her savings to earn a real interest rate of 6% before retirement and 4% after retirement. She does not want to count on CPP or OAS, so does not want to include those in her plan. Thus, her entire retirement will be funded on her own savings. How much money will Melanie need to save each year to be ready for retirement at age 70? (30 marks)
ANSWER _______________________