Nicole is aged 38 and Keith is aged 42. Nicole works a stay-at home mum whilst Keith runs his own marketing business from an inner suburban office, which produces an average net profit of $150,000 before tax. They have two sons, aged 5 and 8 whom they expect will remain dependent until age 21 at which time the living expenses will decrease by $13,000 p.a. for each child when they leave home. They own their own house worth $950,000, which is subject to a mortgage of $375,000. They also have an outstanding credit card debt of $6,000. Both Nicole and Keith own their own cars. The couple’s living expenses total $84,000 p.a. including payment of a $27,600 p.a. annual mortgage payment. The couple would like to send the children to a private school from years 9 – 12 which is expected to cost $160,000 in total. In event of death of either Nicole or Keith, they estimate death and medical expenses to cost around $12,000. Keith currently has life cover of $150,000 in his superannuation fund (his current superannuation fund balance is $225,000) whilst Nicole has no life cover, also they have no other personal insurances. Keith’s father passed away recently at age 67 as a result of heart disease, which seems to be a historical problem in Keith’s family.

Required

a). List the potential risks faced by the couple in terms of their assets and income.
b). What type of insurance policies would you recommend for Nicole and Keith to protect their personal risks? Discuss the merits for each of the types of insurance policies.
c). Calculate how much additional life insurance might be recommended for Keith? Assume that coverage is required through to current life expectancy (85 for females, 81 for males). Further assume the reinvestment rate is 8% per annum.
d). After providing your recommended coverage, the couple is surprised to think that they would need so much coverage and are not happy to pay out the required premiums. What steps could you undertake to protect yourself against future litigation on the basis that the couple decide not to take up your recommendation?