Case Study 2 - "Establishing Personal Insurance Needs in Australia"

Eddie and Kaye Turner aged 39 and 37 respectively, have four children aged 4,6,8 and 10. They own their own home, which has a current market value of $500,000, and have a mortgage of $150,000.

Eddie is a self-employed butcher who employs 3 staff. Eddie and Kaye are in partnership and share profits equally.

Eddies annual income is $80,000. Kaye works part time helping in the butchers shop and also part time as a schoolteacher's aide; she also receives $15,000 as a salary from the school.

Both Eddie and Kaye contribute to superannuation funds. Eddie has an accumulation fund, which currently has a balance of $250,000. Kaye joined her fund more recently and has a balance of $105,500. Eddie has affected a term life cover on his life for $200,000 with Kaye named as the beneficiary. Kaye does not have any term life insurance cover.

Eddie and Kaye have assets, which are mainly in the butchers shop, totaling $150,000. The turners have a car each. Eddies is a 2014 model, which is leased and has $30,000 outstanding on it at present.

Kaye has a 2009 van so that she can transport the children to school and various sporting clubs. Her van is valued at $10,000 and is fully paid for. Personal loans, credit cards and other outstanding debts amount to $20,000

The family's monthly expenses amount to $8,000. The Turners feel that all their children should receive a university education and expect them to be dependent until they turn 21 years of age.They expect to contribute a total of $200,000 to the cost of the children's university education. As each child ceases to be dependent, the monthly expenses will reduce by $1,000 a month. Eddies life expectancy is 82 and Kaye's is 86.

Questions for Case Study 2 - "Establishing Personal Insurance Needs in Australia"

Q1 - (2.5 Marks) - Calculate the amount of cover required for the family's future in the event of Eddie's death.

Q2 - (2.5 Marks) - Calculate the amount of cover required for the family's future in the event of Kaye's death.

Q3 - (1 Mark) - You have advised the turners of the amount of insurance cover they need. They find it hard to believe that such a large amount is needed. They say that, by insuring for a lower amount and investing the funds, the required amount could be achieved.

Explain to them the problem with this approach.

Q4 - (1.5 Marks) - Discuss the need for the following covers for both Eddie & Kaye (3 -4 Sentences each question)

a)Total and permanent disability insurance cover

b)Trauma insurance cover

c)Income protection insurance cover

Q5) - (1 Mark) - When talking about income protection insurance, Eddie & Kaye ask if there is some way they could cover their business overheads against a time when the butchers shop would have to close for a month or so as a result of some unknown health risk.

Explain the business overheads insurance and advise the amount of cover that should be taken. (6 - 7 sentences)

Q6) - (1 Mark) - When completing the personal health questionnaire Kaye indicates that she has had no history of breast cancer. However, 3 months after completion of the contract, Kaye has tests, which confirm some minor breast cancer tumours.

Discuss whether Kaye's term life insurance is still valid. (6-7 Sentences)

Q7) - (0.5 Marks) - Outline insurances other than the personal risk covers discussed so far in this case study that Eddie & Kaye should have as part of their overall risk protection plan. (5 -6 sentences with examples)