Question 1

Jack is 35 years old and is married to Julie who is 30 years old. They have two children, Luke (three) and Samantha (10 months). Julie is a stay at home mum and Jack has his own landscape gardening business which grosses $190,000 per annum. Their current living expenses are $50,000 per annum. Other than the business, they have no other income. Samantha was recently diagnosed with epilepsy and future medical expenses are to be approximately $8,000. The couple has no insurance in place. The clients have asked you to undertake a risk assessment for them, indicating a ranking as to which risks are most detrimental to their familys security.

Question 2

Given the clients risk assessment from question 1, suggest ways that Jack and Julie might manage their risk.

Question 3

You have been asked to advise on the amount of life insurance cover that should be provided for the Graham family.

Rita is 30 and is an accountant with an annual gross income of $120,000. Her husband Garry is 32 years old and self-employed, as a landscape gardener and earns a taxable income of approximately $180,000 per annum. Both work full-time and utilise childcare for their two children aged one and four. Both children will attend the local public school. The familys living expenses are $3,000 per month, which covers all their immediate needs. In addition, each parent needs $250 per month and the children require $220 per month, child care amounts to $350 per week per child until each child is of school age and then it is expected to drop to $100 per week per child for after school care. The children are expected to be dependent until they reach 21 years. Once the children are no longer dependant, it is anticipated that living expenses will fall to $2,000 per month.

Rita and Garry recently purchased their own home valued at $650,000 but still have a mortgage of $350,000. This is fixed at 5% principal and interest. Both Rita and Garry have credit cards the total balance is $18,000. They would also like to fund their childrens university education expected to be $30,000 per child. Rita has superannuation with insurance worth $250,000 and Garry has $75,000 in his superannuation account.

Calculate the level of term life cover needed for Rita and Garry using both the multiple and the needs analysis approaches. Assume funeral costs $10,000, final medical $15,000, legal $5,000 and emergency funding $25,000. Investment rate is 5% per annum. Show all workings. Assume that both Rita and Garry will need to be provided for till age expectancy of 82 years.

Question 4

Your client has been a smoker for the past 20 years. He does not want to discuss this fact with the insurer as he is aware that this will impact on the premiums that he will be required to pay. Discuss the issues the client needs to consider and the ramifications of not making a full disclosure to the insurer. What is your recommendation in this regard?

Question 5

Your client is self-employed and has sought advice on income protection insurance. Discuss the factors that will cause the premiums to increase or decrease. Illustrate your answer with and example (e.g. illustrates the potential difference in premiums for two people of different ages, occupations, genders, habits, hobbies etc.

Question 6

Michael Mackintosh is a surveyor with his own business. He has an income of $200,000 and pays tax of $70,000. His personal (not business) expenses, including mortgage repayments, amount to $60,000. George is in good health, aged 55. In effecting an income protection policy, the insurer will limit the cover to 75% of income.

a) What monthly benefit level would you suggest Michael take?

b) What benefit period would you suggest?

c) What waiting period would you suggest?

d) What are the advantages and disadvantages of level and stepped premiums?

Question 7

Why is it advisable for a client to have business overhead insurance?

Question 8

a. Discuss the use of professional indemnity insurance and when it is appropriate.

b. Discuss why general insurances such as home and contents, car insurances etc are not handled by financial planners.