FINANCIAL PLANNING

As an authorized representative of licensed dealer, Complete Risk Solutions (AFSL No 200 272) you are licensed to provide both financial planning and insurance advice. You have over 15 years experience in the insurance industry and have just graduated with your Master of Financial Planning. Potential new clients, Mark and Sophea Rocco have just contacted you in relation to their risk management situation. You have sent them a Client Fact Finder and your Dealers FSG. Mark and Sophea are 50 & 45 respectively. They have been married for 12 years and have two young children Jack and Niko aged 10 and 8 respectively.

Mark and Sophea have booked both children into independent private schools for their high school years and also anticipate that the children will attend university in the future. Mark and Sophea have given a lot of thought to the costs involved for this and estimate that private schooling would be at least $5,000 pa for each child - they cant bear to even think about the costs of tertiary education! At worst the children will be able to pay the fees themselves and at best they could support them by paying yearly uni fees of $10,000 per child (for three year degree each). If something were to happen to Sophea they would also like to factor in childcare and domestic support till the youngest child was 16. They estimate this would be $20,000 pa. They assume the children will eventually be independent at 21 years of age.

Mark owns and runs a highly popular sports therapy business with rooms in a nearby suburb he is the key person for the business and clears approximately $150,000 pa after taxes. Sophea is a qualified nurse but has not worked full time since before the children were born. She does assist Mark with some secretarial and part time support at the practice her widowed mother Yula (75 years old) looks after the children for her at these times. Yula lives with them fulltime and they currently (and will continue to) support her financially with $400 per month.

Mark has recently been diagnosed as a type 1 diabetic (as was his father and grandmother before him) this has come as a big shock to him; he was in denial about it initially but has now come to accept it. He will have to make some dramatic lifestyle changes such as losing 15 kgs, reduce his stress levels and adhere to a dedicated exercise program. He may also have to think carefully about his favourite hobby of high speed boat racing every weekend. Sophea has accepted Marks diagnosis she is of course concerned that this is a very serious condition, but being a trained nurse she can assist him greatly, especially with daily injections and close monitoring for his condition. She is in reasonably good health herself, though she is a heavy smoker (always has been since 15 years of age) she appears determined to give up the filthy habit but this had not occurred to date.

Mark and Sophea have a comfortable home on the lower north shore. The

home which was recently valued at $950,000 still has a mortgage of

$400,000 owing on it. They were very lucky to purchase this home 3 years

ago, having sold their small unit for $250,000 and Sophea inheriting

another $300,000 from her grandmother on her death. They both own

reasonably new cars; she has a big 4 wheel drive which she needs to ferry

the children around in and he drives a Mazda sports car. The cars are

valued at $120,000 in total. The cars have an outstanding personal loan of

$50,000 on them. They have no comprehensive insurance on either of the

cars as they consider the cost of premiums to be prohibitive.

Mark and Sophea also have outstanding credit card debt of $25,000 which

seems to always be there like a noose around their necks!! Their other

assets include a new share portfolio (currently valued at $50,000), household contents of roughly $200,000, an ING online account of $10,000 and some cash at hand of $5,000 for emergencies (they tend to think they require more than this). Both Mark and Sophea have superannuation accounts with balances of $500,000 and $200,000 respectively.

The couple estimate that they spend $3000 per month on their combined

living expenses (not including the mortgage or car repayments) and an additional $50 per week on each member of the family, except Yula. Mark and Sophea have always been wary of insurance both products and salesmen!! They tend to view it as a waste of money. Hence they do not have any existing cover on their lives, their property or private health. They do however currently have insurance of $300,000 for business related cover for Marks practice and some basic car insurance (not comprehensive).

Mark and Sophea have now come to a stage in their lives where they are thinking seriously about the future and may be changing their minds about insurance cover. This is why they have come to you seeking professional advice in your specialised field of risk management. They require a complete risk analysis of their situation. They have been referred to you by a close friend who says you have the credentials, experience and knowledge to recommend the most appropriate protection plan for their current circumstances.

Additional Information you may require:

Current life expectancy for females is 85 years and for males is 80 years.

You will need to make appropriate assumptions where required such as:

Approximate funeral costs $25,000

Final legal expenses $20,000

Final medical costs $30,000

Emergency Funds $20,000

Adjustment expenses $10,000

1. Identify the types of risks that the Rocco family faces which can result from personal income losses caused by human life contingencies.

2. Describe the two approaches which can be used to determine the amount of life cover required for a client.

3. Determine, by preparing a needs analysis, the amount of cover required on Marks life. Note all assumptions and show all workings.

4. Explain to Mark and Sophea why it is important to consider life insurance as a central part of their financial planning

5. Explain to Mark and Sophea