Read the scenario below and answer the questions that follow:

Your client insured his townhouse for R$1900000$ when he purchased it two years ago. Recently the property was damaged due to heavy rains and floods and the cost of the repairs is estimated to be R$650000.$

The client$$s short$-$term insurer determined that the value of the townhouse was R$2400000$ before the floods. They informed your client that he will not be compensated for the full cost of the repairs. He is very upset as he does not understand the working of this claim.

$6\mathrm{.}1$ Identify the short$-$term insurance principle that the insurer will apply to the client$$s claim by selecting the appropriate option from the drop$-$down list below. $(2)$

The insurer applies the principle of Answernot insuredcontributionaverageunderinsured because the client$$s townhouse is Answercontributionunderinsuredaveragenot insured.

$6\mathrm{.}2$ Do a calculation to show how the insurer will determine the settlement amount that they will pay. Note: round off to the nearest rand. $(2)$

RAnswer$/$RAnswer x RAnswer

$=$ RAnswer will be paid out

Your client $($age $45)$ is married and has two children who are in high school. During your annual review visit to your client, the need for a death needs analysis is discussed and your client provides the following information:

Liabilities:

Credit card: R $85000$

Vehicle finance: R$150000$

Mortgage bond: R$650000.$

In the event of your client$$s death, he would like to provide for the following:

A monthly income of R$20000$ for his wife over a period of $15$ years.

A discretionary fund of R$180000$ to take care of his wife and children$$s needs while his estate is being wound up$.$

Funds for the children$$s tertiary studies: R$500000$

Settlement of outstanding taxes: R$70000$

Funeral and final expenses: R$50000$

Funds to pay estate costs: R$45000$

All debts to be settled on his death.

Current provisions:

Whole life policy with R$1300000$ life cover.

Your client belongs to his employer$$s pension fund and, in the event of his death, a fund benefit of R$1500000$ is payable.

Bottom of Form

QUESTION $8$

$7\mathrm{.}1$

$7\mathrm{.}1$ Calculate the shortfall or surplus in the event of your client$$s death. $(12)$

Capital required

Discretionary funds

RAnswer

Outstanding debt

RAnswer

Monthly income R

RAnswer

Taxes

RAnswer

Funeral and final expenses

RAnswer

Estate costs

RAnswer

Education provision

RAnswer

Total capital required

RAnswer

Less cover in place

RAnswer

Capital shortfall$/$surplus

RAnswer

Recommend a product that your client should consider to address each need described below by dragging a product label and dropping it under the correct need. $(3)$

$7\mathrm{.}2\mathrm{.}1$ Your client heard that university fees increase annually by at least $7\mathrm{.}5\%.$ He wants a separate policy to provide for university fees and insists that the cover on this policy must increase with $7\mathrm{.}5\%$ and the proceeds must be tax$-$free.

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$7\mathrm{.}2\mathrm{.}2$ Your client would like to make provision for an amount of R$60000$ that will pay out to his father if the client should pass away during the next five years.

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$7\mathrm{.}2\mathrm{.}3$ Your client wants a product that will pay out R$50000$ at short notice should he or his wife die.

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Whole life policy Term assurance policy Funeral policy Health policy Endowment policy Sinking fund policy

Ms A $($age $45)$ works as a receptionist at a well$-$known physiotherapy practice. She is a single mom and has a daughter who studies at the local university and is financially dependent on her mother. Ms A has recently been promoted to the post of practice manager and feels that she can now afford to take out additional disability cover, if needed.

As Ms A$$s financial planner, you obtained the following information from her:

Liabilities:

Credit card: R $15000$

Bank overdraft: R $7000$

Mortgage bond: R$380000.$

Objectives in the event of disability:

Monthly income: R$20000$ for a period of $20$ years

Discretionary funds for alterations to her vehicle and house: R$350000$

Fund for daughter$$s tertiary studies: R$500000$

All debts to be settled.

Current provisions:

Whole life policy with R$800000$ life cover and R$500000$ capital disability cover.

In the event of disability, her employer$$s pension fund pays a lump sum of R$1550000.$

$8\mathrm{.}1$ Calculate the shortfall or surplus on Ms A$$s disability $(10)$

Capital required

Discretionary funds

RAnswer

Outstanding debt

RAnswer

Monthly income R

RAnswer

Education provision

RAnswer

Total capital required

RAnswer

Less cover in place

RAnswer

Capital shortfall$/$surplus

RAnswer

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