Case study

ESTABLISHING PERSONAL INSURANCE NEEDS Eddie and Kaye Turner, aged 39 and 37 respectively, have 4 children aged 4, 6, 8 and 10. They own their home, which has a current market value of $500 000, and have a mortgage of $150 000. Eddie is a selfemployed butcher who employs 3 staff. Eddie and Kaye are in partnership and share profits equally. Eddies annual income is $80 000. Kaye works parttime helping in the butchers shop and also parttime as a schools teacher 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 $100 500. Eddie has effected 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, totalling $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 familys monthly expenses amount to $8000. 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 childrens university education. As each child ceases to be dependent, the monthly expenses will reduce by $1000 a month. Eddies life expectancy is 82 and Kayes is 86.

QUESTIONS 1 Calculate the amount of cover required to provide for the familys future needs in the event of: (a) Eddies death (b) Kayes death.

2 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.

3 Discuss the need for the following covers for both Eddie and Kaye. (a) Total and permanent disability

(b) Trauma

(c) Income protection

4. When talking about income protection insurance, Eddie and 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 business overheads insurance and advise the amount of cover that should be taken.

5. 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 Kayes term life insurance is still valid.

6. Outline insurances other than the personal risk covers discussed so far in this case study that Eddie and Kaye should have as part of their overall risk protection plan.