Q:Five years ago, Selena received an inheritance from her grandfather. With the proceeds, she bought a segregated fund with a 75% guarantee. She purchased 5,000 units at $25 per unit, for an initial investment of $125,000. Today, the value of her units has increased to $35. Selena wants to draw $35,000 from the segregated fund to buy a new car. Assuming the proportional reduction method, what is the impact of this withdrawal on the maturity and death benefit guarantees, and how much capital gain must Selena report for tax purposes?

The guarantees reduce to $67,500. The capital gain is $10,000.

The guarantees reduce to $75,000. The capital gain is $5,000.

The guarantees reduce to $75,000. The capital gain is $10,000.

The guarantees reduce to $67,500. The capital gain is $5,000.

You are correct!!!The answer isThe guarantees reduce to $75,000. The capital gain is $10,000.Rationale:The correct answer is: "The guarantees reduce to $75,000. The capital gain is $10,000."The value of the fund is now $175,000 (5,000 x $35).Selena surrendered 1,000 units of the fund ($35,000 $35 = 1.000). The new value of the fund is based on the new number of units, divided by the original number of units, multiplied by the original value of the fund (4,000 5,000 x $125,000 = $100,000). The guarantee is now 75% (,75) x $100,000 = $75,000.Selena disposed of 20% of the contract ($35,000 $175,000 = .20).The capital gain is 20% of the ACB of the contract and its market value at the time of withdrawal. ($175,000 - $125,000 x .20 = $10,000).Alternatively:ACB of original investment is $125,000 , Original Guarantee = 75% x $125,000 = $93,750Current FMV = $175,000Percentage withdrawn as a percentage of FMV = $35,000/175,000 = =20%Investment remaining = 80%So new guarantee = 80% x $93,750 = $75,000Ratio of ACB to FMV at time of withdrawal = $125,000/$175,000 = 71.43%Therefore the growth is 100% - 71.43% = 28.57%Therefore the capital gain of the withdrawal = $35,000 x 28.57% = $10,000.Q:Robin and Archie have asked their life insurance agent, Bobbie, to calculate how much insurance they would need in the event of Archie's death. Archie's net income is currently $80,000 per year, while Robin's is $40,000. They contribute the maximum to their RRSPs each year and contribute the maximum amounts per year to RESPs that they have set up for their two young children. They prepared the following net worth and expense statements to give to Bobbie.AssetsFair Market Value of Asset

Savings account (Joint)$5,000

TFSA (Archie)$10,600

TFSA (Robin)$10,600

RRSP (Archie)$400,000

RRSP (Robin)$350,000

Principal residence (Joint)$750,000

Liabilities

Mortgage outstanding$400,000

Other Loans such as car loan, credit card outstanding etc$100,000

Household annual expenses$80,000

Robin and Archie estimate that Robin would need to cover 70% of their regular living expenses in the event of Archie's death. Using the capital retention approach and an interest rate of 3%, how much insurance does Archie require?

$350,000.67

$533,000.56

$200,000.50

$257,133.33

Oops, You are wrong :(Your answer was :$533,000.56The correct answer is :$257,133.33Rationale:The correct answer is: "$257,133.33"Assets available at death:Note: Principal residence is not considered an asset for insurance needs analysis.Savings account (Joint)$5,000

TFSA (Archie)$10,600

TFSA (Robin)$10,600

RRSP (Archie)$400,000

RRSP (Robin)$350,000

TOTAL Assets776,200

Final Expense Statement:Liabilities

Mortgage outstanding$400,000

Other Loans such as car loan, credit card outstanding etc$100,000

TOTAL LIABILITIES$500,000

So the couple have a cash surplus of $776,200 - $500,000 = $276,200.Income Needs.Robin will need 70% of the household expenses annually which is 70% $80,000 = $56,000Robin's income is $40,000 per yearSo Robin's income shortfall is $56,000 - $40,000 = $16,000So capitalising this annual income shortfall Archie will have to provide a capital of $16,000/3%(0.03) = $533,333.33Since they have a cash surplus the insurance that Archie requires is $533,333.33 - $276,200 = $257,133.33

Does RRSP Considered an assets for insurance needs analysis

Q:Jenny and Sal Gonsalves are a very successful couple in their mid-thirties. Jenny is a dentist, who specializes in orthodontic treatment, and Sal is the senior vice-president of marketing for an oil company. They have three children, ages five, seven, and eight, and call you to discuss making changes to their current insurance policies based on their current level of income.

Their financial statement is:Jenny's income (last calendar year)$214,000

Sal's income (last calendar year)$763,000

Investments (relevant rate of interest 4.3%)$608,000

RRSPs$341,000

Real estate$1.23 million

Cash$14,700

Mortgage$287,000

Line of credit (loan)$225,000

Credit cards$0

Personal loans (cars, etc.)$113,000

How much would be required to pay the last or final expenses of Jenny or Sal?

$625,000

$113,000

$225,000

$338,000