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Diploma of Financial Planning Module 4 Assignment Submission Instructions: Key steps that must be followed: 1. Please complete the Declaration of Authenticity at the bottom of this page. 2. Once you have completed all parts of the assessment and saved it (eg. to your desktop computer), login to the Monarch Learning Management System (LMS) to submit your assessment. 3. In the LMS, click on the file \"Submit DFP Module 4 Assignment\" in the Module 4 section of your course and upload your assessment file/s by following the prompts. 4. Please be sure to click \"Continue\" after clicking \"submit\". This ensures your assessor receives notification - very important! Declaration of Understanding and Authenticity * I have read and understood the assessment instructions provided to me in the Learning Management System. I certify that the attached material is my original work. No other person's work has been used without due acknowledgement. I understand that the work submitted may be reproduced and/or communicated for the purpose of detecting plagiarism. Student Name*: Date: * I understand that by typing my name or inserting a digital signature into this box that I agree and am bound by the above student declaration. DFP Module 4 Assignment 1505 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Important assessment information Aims of this assessment This assessment covers the fundamentals of insurance. General insurance concepts are addressed, including the role of actuaries and underwriters. Personal insurance contracts are explored including Term Life policies, Total and Permanent Disablement (TPD) policies, Critical Illness (Trauma) policies and Income Protection insurance policies. The requirements for insurance to be offered via a Product Disclosure Statement (PDS) is covered with specific emphasis on researching specific definitions that dictate what is included, and what is not included within a standard contract. Insurance \"buy-back\" features within Term Life and Trauma insurance policies are a focus. The tax benefits and implications associated with income protection policy premiums and benefits are also addressed. Statement of Advice (SOA) documents focussing on insurance advice are critiqued, with a focus on determining whether a reasonable basis for advice has been met. Lump sum calculation for Term Life and TPD insurance needs are calculated using the 'Income Capitalisation', 'Age-to-retirement', and 'goals' approaches. Risk and best practice involving replacing insurance policies is explored, as is the formal insurance review process. Marking and feedback This assignment contains 7 assessment activities each containing specific instructions. This particular assessment forms part of your overall assessment for the following units of competency: FNSASICX503 FNSASICZ503 FNSASICM503 FNSFPL504 Grading for this assessment will be deemed \"competent\" or \"not-yet-competent\" in line with specified educational standards under the Australian Qualifications Framework. What does \"competent\" mean? These answers contain relevant and accurate information in response to the question/s with limited serious errors in fact or application. If incorrect information is contained in an answer, it must be fundamentally outweighed by the accurate information provided. This will be assessed against a marking guide provided to assessors for their determination. What does \"not-yet-competent\" mean? This occurs when an assessment does not meet the marking guide standards provided to assessors. These answers either do not address the question specifically, or are wrong from a DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 legislative perspective, or are incorrectly applied. Answers that omit to provide a response to any significant issue (where multiple issues must be addressed in a question) may also be deemed not-yet-competent. Answers that have faulty reasoning, a poor standard of expression or include plagiarism may also be deemed not-yet-competent. Please note, additional information regarding Monarch's plagiarism policy is contained in the Student Information Guide which can be found here: http://www.monarch.edu.au/student-info/ What happens if you are deemed not-yet-competent? In the event you do not achieve competency by your assessor on this assessment, you will be given one more opportunity to re-submit the assessment after consultation with your Trainer/ Assessor. You will know your assessment is deemed 'not-yet-competent' if your grade book in the Monarch LMS says \"NYC\" after you have received an email from your assessor advising your assessment has been graded. Important: It is your responsibility to ensure your assessment resubmission addresses all areas deemed unsatisfactory by your assessor. Please note, if you are still unsuccessful in meeting competency after resubmitting your assessment, you will be required to repeat those units. In the event that you have concerns about the assessment decision then you can refer to our Complaints & Appeals process also contained within the Student Information Guide. Expectations from your assessor when answering different types of assessment questions Knowledge based questions: A knowledge based question requires you to clearly identify and cover the key subject matter areas raised in the question in full as part of the response. Skill based questions: Where you are asked to write as though you are speaking to a client, your answers must show your ability to: understand your client's concerns/perspective/views show empathy display a professional response explain ideas clearly and simply so your client can understand the issues Good luck Finally, good luck with your learning and assessments and remember your trainers are here to assist you DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Assessment Activity 1 Short Answer General Insurance & Personal Insurance Activity instructions to candidates This is an open book assessment activity. You are required to read this assessment and answer all 8 questions that follow. Please type your answers in the spaces provided. Please ensure you have read \"Important assessment information\" at the front of this assessment Estimated time for completion of this assessment activity: 1 hour DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Required For each of the following situations, describe the insurance policy(s) you believe would entitle a claim to be made. In doing so, please explain why you think a claim could be made. a) Nina runs a coffee shop and slips on a step at home one day and suffers a back injury. As a result she is unable to work for 3 months and incurs significant medical costs. b) Steven, an employee, suffers from stress and is required to rest at home for 2 weeks. c) Alfred is knocked down by a fork lift at work and is hospitalised for 3 weeks. d) Linda, an employee is diagnosed with cancer incurs a significant amount of medical costs. e) She dies within 6 months of the diagnoses. f) Peter was a self-employed plumber. Due to an accident at a construction site one day, he suffers an accident and is unable to work again as a plumber or tradesperson generally. g) A restaurant that is shut down for 6 months because of a cyclone. DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 h) A tenant whose flat burns down. DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Assessment Activity 2 Case Study General Insurance Activity instructions to candidates This is an open book assessment activity. You are required to read this assessment and answer all 3 questions that follow. Please type your answers in the spaces provided. Please ensure you have read \"Important assessment information\" at the front of this assessment Estimated time for completion of this assessment activity: 30 minutes DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Background Albert recently acquired a new plane. He plans to use it mainly for personal purposes, but will also use it for charter trips in order to raise money to help him make payments on the loan and for maintenance costs. Required: 1. Advise Albert on the risks he faces in owning the plane, whether the risks are speculative or pure, and how best he might handle each of those risks. 2. To save some money, Albert decides to insure the plane for less than what it is worth. How is an insurance company likely to deal with this position in the event of a claim? 3. Explain the difference between an actuary and an underwriter. DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Assessment Activity 3 Simulation Exercise Insurance - Trauma, TPD Activity instructions to candidates This is an open book assessment activity. You are required to read this assessment and answer all 10 questions that follow. Please type your answers in the spaces provided. Please ensure you have read \"Important assessment information\" at the front of this assessment Estimated time for completion of this assessment activity: 2 hours DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Background Craig and Beverley come to see you for the first appointment meeting. Craig is 41 and Beverley is 39. They are married with three children aged 9, 8 and 5. Whilst Craig is the main breadwinner, Beverley has just returned to work part-time. As part of your first interview, you are trying to determine your clients' insurance needs. Required: Your task - Skills and Knowledge: 1. How could you respond to Craig who says \"Beverley does not need any life insurance because I already have life insurance and income protection insurance.\"? 2. List 4 reasons why your clients might be reluctant to take on more life insurance? 3. Explain to Craig and Beverley some of the characteristics of trauma insurance. DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 4. What definition/s would Craig need to satisfy to receive a TPD payout whilst working as an electrician under the 'any occupation' definition? Refer to page 104-106 in the Comminsure PDS included in Appendix 1 of Module 4. 5. As a consequence of your interview, Craig and Beverley are considering taking out some insurance for Beverley. Prepare a question you could ask them to determine whether they are ready to proceed to the next step in the process of acquiring some/more life insurance. For example, \"... can you see why that could be an issue for you?\" 6. How would you explain to any client why only having term life insurance may be insufficient? 7. How often do you think it would be appropriate to review Craig and Beverley's personal insurance? Explain why. 8. In your annual review many years later (after Craig and Beverley have become happy clients of yours), they inform you they are borrowing $1.2 million to purchase a share in a business. Explain why an insurance review is necessary at this time? DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 9. Provide a list of 4 hypothetical circumstances which would justify a review of insurance cover for Craig and Beverley? 10. Three years after first sitting down with Craig and Beverley (who are now your clients), Craig suffers a stroke at home. Luckily you advised Craig three years ago about the benefits of critical illness (trauma insurance) so he chose to take out a linked (bundled) policy for term life insurance and TPD of $1,250,000 for each cover and an additional stand-alone critical illness (trauma) policy of $380,000 where claims can be paid out after 14 days of suffering a trauma. Five days after his stroke, Beverley calls you to tell you Craig is not responding to treatment and it is \"touch and go\". She asks you how much cover they have. i. If Craig died 6 days after his stroke, how much insurance would Beverley and the children receive under the policies? ii. If Craig died 43 days after his stroke, how much insurance would Beverley and the children receive under the policies? iii. If Craig survived the stroke, but was now permanently wheel chair bound and unable to work, what insurance would he be entitled to, and how much? DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 iv. If Craig survived the stroke, but was now wheel chair bound and unable to work, explain how a buy back insurance policy would work with respect to his Term Life and TPD policy (assuming the Term Life and TPD was linked under the one policy)? DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Assessment Activity 4 Case Study & Written Questions Insurance - Income Protection Activity instructions to candidates This is an open book assessment activity. You are required to read this assessment and answer all 5 questions that follow. Please type your answers in the spaces provided. Please ensure you have read \"Important assessment information\" at the front of this assessment Estimated time for completion of this assessment activity: 1 hour DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Background Mary and John are in their mid-thirties. They have 2 children aged 7 years and 10 years. They have a mortgage of $400,000. John works as a welder in a large automotive firm earning $54,000 per annum. Mary does not work in paid employment. Both Mary and John have term life insurance policies for $600,000 each. Required: Your task - Skills and Knowledge: 1. Would income protection insurance be appropriate for John to consider? Why? 2. Would income protection insurance be appropriate for Mary to consider? Why? 3. If John had taken your advice and taken out income protection insurance, how much would he receive each month (after his waiting period had been met) if he was unable to work due to depression? 4. What types of insurance should Mary consider? 5. If cash flow is a concern for John and Mary, what strategies could you suggest to enable them to continue with their term life insurance but add income protection as well for John? DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Assessment Activity 5 Simulation Exercise Statement Of Advice - Analysis Activity instructions to candidates This is an open book assessment activity. You are required to read this assessment and answer all 6 questions that follow. Please type your answers in the spaces provided. Please ensure you have read \"Important assessment information\" at the front of this assessment Estimated time for completion of this assessment activity: 2 hours DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Simulation Exercise Refer to Appendix 4 of Module 1 for an example of a Statement of Advice (SOA). It is not a comprehensive SOA. For example, it does not include modelling as to whether retirement aims will in fact be achieved. It is quite basic, yet it is still approximately 50 pages in length. Many industry regulators have lamented that there is a lot of jargon and 'legalese' in SOA's. Consequently many 'end clients' of financial advisers find these SOAs difficult and cumbersome to digest - even though they are paying for them! The SOA you are to read in Appendix 4 is written by a fictional adviser, and includes fictional clients and investment products. Nevertheless, it is based in many parts on norms within the financial planning industry, enforced by dealer groups that are concerned about being litigated against by disgruntled clients. Required: Questions about the insurance recommendations 1. After reading the SOA by Savilles Financial Advisers, has the financial adviser in your opinion sufficiently explained how he arrived at $500,000 of life cover and TPD required to satisfy his obligations under the best interests duty? 2. The SOA recommendations for income protection cover 75% of Gerald's income and Michelle's income. The waiting period is 1 month and the benefit period is paid to age 65. Do you think the SOA adequately explains what the waiting period is, and how the benefit period works? What would you do to improve the advice on these two points? DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 3. If Gerald and Michelle did have dependants (...which they don't), how do you think that should have impacted Saville's assessment of their required life and TPD cover (if at all)? Explain. 4. It mentions in the SOA that they shouldn't cancel their existing policies until the recommended insurance with XYZ insurance is put in place. Why is this so important? 5. It mentions under the section 'Costs and Risk of Replacing an Insurance Policy' that the clients will temporarily not be paid out for suicide for a period of 13 months. In your opinion, what is the insurer's intention in regard to that clause? 6. Compare this SOA to the sample SOA in Appendix 8 in Module 1, issued by ASIC. ASIC's template show's how long an SOA can be in theory (....ie. much shorter), whilst remaining compliant. Which SOA in your opinion do you think is easier to read and digest, and why? As a client which would you prefer? DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Assessment Activity 6 Case Study Statement of Advice - Insurance Elements Activity instructions to candidates This is an open book assessment activity. You are required to read this assessment and answer both questions that follow. Please type your answers in the spaces provided. Please ensure you have read \"Important assessment information\" at the front of this assessment Estimated time for completion of this assessment activity: 4 hours DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 The need to articulate your advice clearly, and comprehensively cover all the key issues for a client via a Statement of Advice (SOA) is a critical part of the advice process. This next assessment requires you to prepare different elements of an advice document (i.e. parts of an SOA) for a fictitious couple. IMPORTANT: This assessment has prescribed minimum word lengths that must be adhered to. Grammar, punctuation and accuracy of information delivered will form part of the assessment criteria in the context of determining competence for this assessment. The use of bullet points is allowable sparingly. Background Information Laura and John live in a long-term de facto relationship and are 33 and 36 respectively. Laura is a chemical engineer and works full-time and John is a freelance journalist. Laura is 4 months pregnant with their first child. Laura intends to take at least 2 years off work in a home-maker role not earning income to care for her child before negotiating a re-entry into the workforce with her employer. They have a balanced risk profile from an investment standpoint. Laura earns a gross salary of $85,000 and John is expected to earn a gross income of $53,000. Note: John's salary has varied over the previous three years as follows ($66,000 - 3 years ago, $82,000 - 2 years ago, $51,000 1 year ago). Laura and John rent their house and pay $640 per calendar week on rent. John inherited a portfolio of shares from his grandmother valued at $320,000. He chose to set up a margin lending portfolio 2 years ago. His current margin loan is valued at $190,000 and his current share portfolio is valued at $529,000. Laura has a personal loan on a car valued at $22,000 John and Laura have combined credit card debt of $13,000 Laura has a superannuation balance of $171,000 which is invested in a balanced fund. Note, Laura has Life Insurance and TPD Insurance (Any Occupation definition) of $200,000 held within superannuation. John has a superannuation balance of $35,000 which is invested in a balanced fund. John has existing insurance cover outside of superannuation of: Greatcover Term Life insurance $350,000 (Stand Alone) Laura has existing insurance cover outside of superannuation of: AAA Term Life Insurance $100,000 (Stand Alone) Easycover Term Life Insurance $210,000 Easycover TPD (Own Occupation definition) Insurance $210,000 (note: Bundled with Easycover Term Life Insurance) Required: DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Laura and John come to you seeking scaled advice about their insurance needs in light of their changing circumstances (i.e. their forthcoming baby). You are required to complete elements of an SOA for Laura and John covering your insurance recommendations. Please note, you are NOT required to research actual insurance companies for this project. Your task will involve: Summarising the client's situation Providing scaled advice covering the amounts of insurance required Articulating the basis for your recommendations. Assessment - Part 1 (Minimum word length - 100 words). You are to document Laura and John's \"Current Situation\" as part of the SOA documentation. This should be a succinct summary, and no more than three paragraphs based on the above information (not in bullet points). Assessment - Part 2 (Minimum word length: 600 Words) You are to document your \"Recommendations\" as part of the SOA documentation. This must be uploaded as a separate document into the Monarch Student Management System (LMS). Your recommendations should be written in paragraph form (note: bullet points if used should be used sparingly). Use the following headings (below) and remember all written recommendations should be in your own words; Our insurance recommendations DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Refer to points 1 - 5 below when making your recommendations. You should address each of these issues in your answer. Insurance types explained In this area you are required to explain each insurance type 'generally'. That is, explain what each type of insurance provides and some general information about the type of cover. In a SOA this area is general information which is not specific to a client. This information could be used across the board for any client with an insurance recommendation The basis for our recommendations Refer to point 6 below when you provide a basis for your recommendations. Important information for this assessment: 1. 2. 3. 4. 5. 6. Note - when using the income capitalisation approach, please note there is NO one correct answer. Rather, there are many possible correct answers. Questions 1 and 2 (below) require you to comment on the difficulties involved in trying to determine how much insurance is appropriate. A good answer will identify the main issues to consider as well as indicating any challenges (or opinions) you have when attempting to determine the appropriate amount of insurance. Use the \"Income capitalisation approach\" to determine the recommended sums insured for Life and TPD Insurance. You can use a discount rate for a balanced investor of 4%. Show your workings and any assumptions you make. Combine all assets between Laura and John for this purpose. Discuss the difficulty with Laura's changing work circumstances. In determining how much insurance they require take note of their existing insurance cover. Explain any issues that arise when using the \"Income capitalisation approach\" to determine the required Life and TPD Insurance. Ensure you provide advice across Life, TPD, Trauma and Income Protection. Explain if they are (or are not) applicable to your clients. For the purposes of a recommended Trauma insurance, please recommend a sum of $200,000 each to provide for their estimated future medical expenses. You must address the issue of Laura's income status changing with the impending birth of their first child. Explain in the context of the lump sum amount you determine they both require for Life Insurance and TPD purposes, what TPD definitions would apply both now and after becoming a home-maker, Income Protection insurance and anything else deemed relevant. Include any assumptions you make, and provide a basis for such assumptions used. Given cash flow may well become a concern for the couple after moving to one income (certainly in the short term) after Laura gives birth, provide recommendations that reflect a solution to that genuine concern. Do not assume the sample SOA provided in the Module 1 appendix provides a sufficient 'basis' for the recommendations provided. Use the information in Module 4 course materials to clearly link the key issues and recommendations back to Laura and John's specific scenario as part of your recommendations to demonstrate a sufficient basis. Assessment Activity 7 Calculation Exercise Insurance Requirements DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Activity instructions to candidates This is an open book assessment activity. You are required to read this assessment and answer both questions that follow. Please type your answers in the spaces provided. Please ensure you have read \"Important assessment information\" at the front of this assessment Estimated time for completion of this assessment activity: 2 hours DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Question 1 Refer to the information provided to you in the previous activity - (Activity 6) about Laura and John. Assume now that Laura and John did not rent, rather they owned a house worth $980,000 and had an associated mortgage of $335,000. Assume they have a combined gross income of $90,000 and want to retire at age 60 Re-calculate John and Laura's Life Insurance and TPD lump-sum requirements using; a) The Income capitalisation approach b) Age to retirement lump sum approach c) What is the main advantage and disadvantage of using the 'goals' approach compared to the alternative 'age to retirement lump sum' and 'income capitalisation' approaches when determining a client's required Life and TPD insurance? DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 Question 2 (Minimum word length: 200 Words) If your client doesn't have dependants, explain which insurance out of Life and TPD Insurance is still very important and why, and which insurance out of Life and TPD Insurance is less important and why? In your answer, explain why taking out insurance that has lesser importance, might still be worthwhile for future reasons (e.g. changes in personal circumstances) in the context of health and guaranteed renewability. DFP Module 4 Assignment 1601 Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504 DFP Module 4 Assignment 1601