INTEGRATED FINANCIAL PLANNING

Assignment: Larry and Tanya

Rena Shah – N05131162
Harishruta Agrawal – N01486723
Prabhjot Singh – N01514274
Shushant Singhal – N01514274
Kaushal Raval – N01475813
Date of Submission: 14/10/2022

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 1) Larry and Tanya are thinking about contributing to an RESP for Samantha and have a few
questions for you.

a. If Greta had already established a plan, can they open a new plan or continue to contribute to
already established plan?
 Greta has already established an RESP plan in which she contributes $2000 every year. The rule of
RESP states that there are no limits on the number of RESP accounts being opened on the name of
the child.
 Therefore, to reap the benefit of this scheme, Tanya and Larry should open a new account in the
name of Samantha.
 Although there is no annual RESP contribution limit, to maximize the potential annual CEGS grant,
the minimum amount that they should put into this every year is $2,500. The reason for this is that
for every $2,500 contributed, the government will match 20% of it and deposit it into the same
account i.e. $500.
 There is a life time contribution maximum of $50,000 per child as per the rules of this scheme.

b. Can they deduct the contributions for income tax purposes?

 Tanya and Larry cannot deduct the contributions for income tax purposes.
 There is a growth component in this which ensures that the money invested earns interest. While it is
in the RESP, it won’t be taxed until money is taken out to pay for child’s education.
 The person who is the beneficiary of this RESP scheme is the one who has to bear the taxes on
withdrawal of amount from this RESP account.

c. What is the max CESG Samantha would receive?

 The RESP account has three components: Contribution, Growth and CEGS.
 CEGS is the amount that the government matches to the contribution made to the account. CEGS is
generally 20% but if the net income of the family is below a certain threshold, then CEGS advantage
can go up to 40%.
 In our case, since the net family income is above the threshold, the government will only be
providing 20% of CEGS into the account.
 The maximum CEGS that Samantha will receive is $7,200 in the entire lifetime.
 The condition over here is that if Samantha pursues full-time post-secondary education then she will
be entitled to receiving the full $7,200 but if she pursues part-time post-secondary education then the
maximum amount of CEGS she is entitled to is $3,600.

d. What happens if Samantha does not pursue post-secondary education?

 An RESP can be opened the year that the child is born and can stay open up until the end of the year
that the child turns 35.
 After completing high-school, the child can opt or not opt to get enrolled for a post-secondary
education. Between the age of 18 and 35, the child can decide to use this RESP money for a wide
range of full-time or part-time educational programs.
 In our case, if Samantha doesn’t pursue post-secondary education till the age of 35, the following
will be the implications:

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 RESP

If Samantha doesn't
pursue post-
secondary education:

Principal
CEGS Invesment Income
Contribution

Returned to Repaid to the Included in the

Subscriber Government contributor's income

Taxed on the income

Rollover to RRSP of
contributor or spouse

2) If Greta continues making the same RESP contribution each year until Samantha starts school and
Larry and Tanya decide not to save anything for Samantha's education within an RESP, how much
will be in the RESP by the time she starts school, assuming that the investments within the plan earn
7.5% before tax? They would like to see how it was calculated.

 As Greta is making payment every year in RESP for Samantha, Samantha is going to have a lump
sum amount of payment by the end of 15 years when she starts school.
 The total amount of money saved up can be calculated by computing future value based on the
formula of time value of money.
 Time value of money: Time value of money is a concept that says that a sum of money is worth more
now than the same sum will be at a future date due to its earning potential at that period of time.

N (No. of years) 15
I/Y (Nominal Interest per year) 7.5%
PV (Present Value) 0
PMT (Amount of regular payment) 2000
FV Compute (?)
 By computing FV as per the time value of money, Samantha will have $52,236 saved up in her RESP
account by the time she starts school.

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 3) If Tanya wants to sell the store, she will have to discharge her mortgage early. Interest rates on 2-
year mortgages are 6.75% and the bank will impose a penalty using the interest rate differential
approach. This year, she will reduce the principal by $7,000 through her regular mortgage payments.
What penalty will Tanya have to pay to discharge the mortgage at the end of this year?

 Yes, if Tanya wants to sell the store, she must discharge her mortgage early. Current interest rate is
6.75% whereas the mortgage interest rate is 7.25%.
 So as per the formula of interest rate differential approach, the difference we get by subtracting
current interest rate from the mortgage interest rate is the interest rate at which the penalty will be
calculated.
 Mortgage Balance= $80,454, from which $7000 will be deducted as the principal amount will be
reduced through her regular mortgage payments, i.e., $73,454.
 Penalty= Mortgage balance to be paid x differential interest rate x no. of years for penalty to be
charged
= $ (73454 x 0.5% x 2)
= $734.54.
 So, by the end of this year, she will have to pay a penalty of $734.54.

4) Suppose Tanya had a serious car accident, such that she suffers from amnesia and the doctors expect that it
will take her the better part of a year to recover from her physical and mental injuries. What if Tanya became
completely incapacitated today? How would it impact the business? Where would the family get income and
how much? What would you recommend?
 Term life insurance also referred to as pure life insurance, compensates the policyholder's beneficiaries over a
predetermined period. Following the term's expiration, the policyholder has three choices: extending the
coverage for another term, switching to permanent protection, or letting the term life insurance policy lapse.
 Disability insurance is a sort of insurance product that pays out if a policyholder becomes disabled and is
unable to work and make a living. This type of policy agrees to replace a portion of your income if a disabling
injury or illness prevents you from working in a covered occupation.
 Financial stability for you and any family members who may rely on your capacity to earn a living is provided
by disability insurance.
 Your policy's disability insurance benefits are available for any purpose you choose, including childcare and
grocery shopping as well as out-of-pocket medical costs.
Recommendation-
So, Tanya has purchased a term insurance policy of $150,000 but she doesn’t have any disability insurance.
Since Tanya is a sole owner and there are very high chances of the business getting shut down. So, Tanya has some
options that she can opt for-
1. Give Greta control of the business since she has assisted Tanya in the business.
2. She can opt for joint tenancy with her spouse Larry or with her mother Greta or some business partner since it will
ensure that the business doesn’t stop.
So, the family will have to rely on Larry’s income which is $62000 and $6000 rental income. Tanya has some artwork
including sculptures and paintings which has a valuation of $50,000. We would recommend Tanya should purchase a
disability benefit.

5) How much life insurance would you recommend for Tanya using the capital- needs approach?

Costs At Death Amounts

Avg Funeral Cost in Canada 10,000
Emergency Fund (Six Months) 20,000
Probate and Taxes (Estimated) 49035.6
Total 79,036
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 Debts & Other Expenses
Mortgage on Store Front 81454
Mortgage on house 13725
Credit Card 900
Total 96079

Annual Living Expenses

Property Taxes 1800
Home Insurance 720
Utilities 2800
Maintenance 1200
Landscaping 1500
Food 6000
Household Expenses 3200
Telephone 720
Personal Care 1500
Clothing 5000
Transportation 4500
Entertainment 4800
Holidays 6000
Life Insurance 540
Interest On credit Card 294
Sports 1600
Books 1200
Total 43374

Assets
Liquid Assets 1500
Store 220000
Inventory 45000
RRSP 45000
Total 311500

Income
Self-Employment Income 31955
Rental Income 6000
Interest 25
Total 37980

 Estimated Number of years = 45 (Avg. Life expectancy – Current age)

 Total Costs = (Costs at death + Debt & other expenses + [Assets * Years of Need])
 Total Costs = $ 2,125,944.60
Total Income and assets = (Annual Living expense + [Annual income * years of need])
 Total Income and Assets = 2,028,025.00
 Amount of coverage needed = Total cost – total difference = $ 97,919.60
Reference –

Government of Canada, F. C. A. of C. (2019, March 1). 6.2.3 how much life insurance you need. Canada.ca. Retrieved
October 14, 2022, from https://itools-ioutils.fcac-acfc.gc.ca/yft-vof/eng/insurance-2-4.aspx
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 6) If Larry terminates his employment, he will lose his group health plan. What would you recommend?
 Group benefits, are known as group health insurance, may be offered by a corporation or organisation.
 The benefits are provided to several persons, but the business or organisation is the actual insurance holder.
 The majority of the time, all group members are obligated to participate in the group benefits plan.
The following are some advantages that an employee can receive from group insurance: -
 They are relatively cheaper than individual health insurance.
 It is a general policy which covers all.
 Provision pf adding a family member in the policies are their in-group insurance
 They are generally cashless.
The disadvantage of the Group insurance area: -
 Their health-related coverage is typically limited, and their plans are highly ambiguous and non-customized.
 Once an employee leaves the company, they are no longer eligible to receive insurance benefits.
Recommendations: -
 In general, Larry is eligible to enrol in the new group health plan.
 Larry is also eligible to enrol in the family plan with Samantha and Tanya.
 Larry Can also buy the disability insurance.

CONTRIBUTION BY GROUP MEMBERS

Upon receiving the assignment, all the team members sat together during the lecture and completed the
majority of the questions. Everyone worked together and solved all the questions after understanding the
whole case study. All answers were discussed by members but everyone also worked individually on
questions and received inputs of other members. Presentation was created by Rena and the Word Document
was done on a Google Drive where Rena, Harishruta, Prabhjot, Shushant and Kaushal put the parts and the
final document was compiled by Rena. This was the overall contribution of all the members in this
assignment.

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