Question : Provide your insurance recommendations for following client background information?

Background information :

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)

Your recommendations should be written in paragraph form (note: bullet points if used should be used sparingly).

Use the following headings Our insurance recommendations

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:

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.

1.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.

2.Explain any issues that arise when using the "Income capitalisation approach" to determine the required Life and TPD Insurance.

3.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.

4.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.

5.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.

6.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.