FPC004 Insurance Advice - Assignment 2: Case Study Questions

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Assignment 2 details

  • This assignment covers Topics 1 to 2 and Topic 5 to 8 and accounts for 40% of your final grade.
  • There are five (5) short-answer and long-answer questions in this Answer all questions.
  • Marks will be awarded for referencing and
  • Your overall mark for this assignment will be rounded to the nearest whole number.
  • Refer to the Criteria-Based Marking Guide for guidelines on what is expected for each
  • This assignment is based on a case study and all questions relate to the facts detailed in the case
  • Full workings must be shown for all calculations. Show all calculations in the text of your assignment and not attached as an Appendices to the assignment will not be read.
  • Indicative weightings are noted beside each question. Use these weightings to assist you with your allocation of time and The weightings indicate the relative importance of each question.
  • State all assumptions used in providing your answer.

Independent research

For some or all questions in this assignment, you will be required to complete independent research beyond the provided materials. You will also be expected to analyse this research and use it to support your own reasoned conclusions.

This includes:

  • consideration of multiple sources beyond topic notes or other provided resources
  • sources included are academically sound and credible
  • analysing and understanding the argument or information the source presents
  • using the material appropriately to directly support your

Where significant independent research is required for a given question, it will be clearly indicated in the question instructions and the Criteria-Based Marking Guide.

Assignment 2 referencing and presentation (5 marks)

Your assignment should be presented in a clear and appropriate format, with all sources correctly referenced and cited.

You are required to:

  • structure a clear response to each question, using headings if required
  • number questions (including sub-questions) and pages
  • use correct font style and size
  • ensure tables or graphs are clearly labelled and readable
  • clearly set out calculations or workings, where they are required
  • adhere to the assignment word limit
  • cite sources and provide a reference list at the end of your It is recommended to use Kaplan Professional’s preferred referencing style, Harvard (see Kaplan Australia: Harvard Referencing Guide, available from the ‘Build Your Skills’ hub in KapLearn), but the consistent application of any other referencing style will also be accepted.

Case study

You meet your clients Bob and Janet again, from Assignment 1, to work on life insurance needs for themselves and their business.

You may recall they recently started an online business, selling a range of household items, including kitchenware, cleaning products, towels, blankets, ornaments and many other items.

The business has expanded rapidly and they are now leasing a warehouse from where they operate the business.

They will hire two people initially to help run the business and also operate a shopfront.

They operate the business through a discretionary family trust, and have their own private company

‘Homeware Galore Pty Ltd’ as trustee of the family trust. The business’s trading name is Homeware Galore

Pty Ltd.

Bob and Janet have four children: Sarah (age 19) who is currently a full-time student and not working; Jonathan (age 17) who is completing year 12; Kathryn (age 14) who is disabled due to a spinal injury suffered five years ago, and attends a special school; and Kerrie (age 9), who is still at primary school.

Bob and Janet’s objectives are to ensure that if either of them dies prematurely, suffers a serious illness

or is permanently disabled, they want:

  • to be able to afford for both of them to take time off work (say six months) to spend time together and look after the other one
  • a buffer of $100,000 to cover any expensive medical treatment, or additional home care for Kathryn if needed
  • to support each child for their education, say $5,000 a. for each child until they reach age 23.

Each of them would like to replace their income if they were unable to work again. They have noted the following:

  • They do not want a serious illness or injury to put them in a financial position that would make it difficult for them to retire at age 67 for Bob and age 62 for Janet.
  • Bob is in good health but he is a heavy smoker. Janet is not a smoker but she has been suffering from high blood pressure and high cholesterol, and even with medication is having problems keeping them under control.
  • They do not want to spend too much on insurance premiums, but at the same time they realise there will be a cost for getting what they need.

Following are the details of their personal situation, assets and liabilities, cash flow and current insurance situation. You will need this information to complete the questions in this section.

Personal information

Surname Anderson Anderson
Christian name Bob Janet
Salutation Mr Mrs
Age/Date of birth 42 37
Status Married Married
Home address 28 Marketing Way, Town 28 Marketing Way, Town
Occupation Manager and business operator Sales and clerical
Employer Homeware Galore Pty Ltd (self-employed) Homeware Galore Pty Ltd (self-employed)
Years employed 2 years 2 years
Sick leave currently available Nil Nil
Smoking status Smoker Non-smoker
Health Excellent, no issues High blood pressure and cholesterol
Retirement age 67 62
Dependants/Family relationships Age Notes
Sarah, daughter 19 At university and not working. Estimated to be dependent until age 23
Jonathan, son 17 Doing VCE. Estimated to be dependent until age 23
Kathryn, daughter 14 Is wheelchair bound due to spinal injury. May qualify for Disability Support Pension at age 16.Will continue to be a dependant due to disability
Kerrie, daughter 9 Still at primary school. Will possibly be dependent to age 23

Assets and investments

Lifestyle asset Owner Value Details
Principal residence Joint tenants $1,100,000 Mortgage outstanding $250,000 25-year term, 4.7% P&I
Contents Joint $80,000 Insured value
Car: 2020 Holden Commodore Bob $45,000 Fully paid off
Car: 2018 Audi A4 Janet $45,000 Fully paid off
Financial asset Owner Value Details
ANZ bank account Joint $10,000 Everyday savings account earning 0.80% p.a.Assume not available in case of death/TPD or trauma
ANZ mortgage offset account Joint $30,000 Assume is available in case of death/TPD or trauma
REST Super Bob $210,000 100% Core Strategy (My Super default) Standard default insurance in place
REST Super Janet $175,000 100% Core Strategy (My Super default) Standard default insurance in place
Homeware Galore Pty Ltd (through family trust) Bob and Janet as main beneficiaries $630,000 Valuation provided end FY 2022Includes current cash reserves in the trust/company of $150,000

Annual income and cash flow details

Details Bob Janet Combined
Salary $80,000 $80,000 $160,000
Company distribution (typically $0) $0 $0 $0
Interest on bank account $40 $40 $80
Total income received $80,040 $80,040 $160,080
Total deductible expenses $100 $100 $200
Tax payable including Medicare and offsets $18,046 $18,046 $36,093
Total mortgage repayments $17,500
Total general expenses $80,000
Net cash flow $26,287

Insurance and risk management

Bob and Janet have recently met with the general insurance specialist in your firm and have implemented a comprehensive general insurance plan for themselves and their business.

This is a summary of their life insurance situation.

Insurance Owner Cover Premiums and details
Life Bob $387,500 Premium $6.75 p.w.
TPD Bob $28,600 Premium $0.82 p.w.
Income protection Bob $2,125per month Premium $6.40 p.w.90-day waiting period – benefit period five years
Life Janet $381,000 Premium $6.75 p.w.
TPD Janet $28,600 Premium $0.74 p.w.
Income protection  Janet $2,125per month Premium $4.20 p.w.90-day waiting period – benefit period five years

The above insurance is the default insurance cover in their REST Super accounts.

Personal needs and assumptions

After a discussion with you, they have agreed that in the event of death, funeral costs of $20,000 would

be sufficient, and a provision for final medical costs of $15,000 and legal costs of $5,000 would be appropriate.

They would also like to consider any government assistance that would be available in the event of death or disability.

Business needs and assumptions

They believe the $150,000 cash reserves are sufficient in the company. Half of the reserves could be used if something happened to Bob or Janet and the other half would cover business needs and overheads.

The business has no debts to cover.

Question 1

Bob and Janet are ready to review their life insurances. Identify at least 16 key details/questions

that you need to either ask your clients or reconfirm, to assess their life insurance requirements. In your response, include a brief explanation of why you require these details. (8 marks)

Question 2

Bob and Janet would like you to make a recommendation on their life insurance requirements.

In your response, show the different types of cover that would be appropriate and provide detailed calculations for determining the level of cover they require.

Where there is insufficient information in the case study, either make a reasonable assumption or simply clarify the item that would be considered without necessarily providing a value. (15 marks)

Question 3

  • Outline the policy ownership options for the insurance covers your clients (5 marks)
  • Explain the implications and disadvantages of each of the policy ownership (16 marks)

Note: Be mindful of the high mark allocation. You do not need to show calculations in your response, but you should consider all the relevant steps and issues to ensure your response is comprehensive.

  • Discuss the two (2) key premium options to consider for the insurance policies. (3 marks)
  • Identify and briefly explain the three (3) types of TPD (6 marks)
  • Explain the meaning of ‘waiting period’ and ‘benefit period’ for income protection (2 marks)

Question

After making insurance recommendations to Bob and Janet, describe the steps and procedures to implement your recommendations. In your response, you should include:

  • All key compliance obligations, and the relevant documents you would expect Bob and Janet to read, complete and (5 marks)
  • A brief summary of the underwriting that may be required for the insurances you have (5 marks)

Question

For this question, refer to the AIA product disclosure statement (PDS), which can be downloaded from the following website link: <https://www.aia.com.au/content/dam/au/en/docs/policy- docs/Priority_Protection_Product_Disclosure_Statement.pdf>.

  • If you have a client with an AIA life policy and they are diagnosed with cancer, can their life insurance be paid upon diagnosis? Give reasons for your (2 marks)
  • If Bob or Janet takes out a trauma policy for $100,000 cover with no rider benefits, can they be paid a benefit if their children are diagnosed with cancer? Give reasons for your (2 marks)
  • If your clients have a TPD policy and satisfy the definition of ‘TPD’ due to a leg amputation,

can they be immediately paid a TPD benefit? Give reasons for your response. (2 marks)

  • If Bob and Janet have a trauma policy and are overseas, and Bob becomes hospitalised overseas for two months due to a stroke, will Janet qualify for any benefit? Give reasons for your response. (2 marks)
  • If you have a client who is age 60, can they take out a policy with AIA? (2 marks)

Note: While any insurer’s PDS can be selected and there are similarities across the insurers, we have selected one insurer to allow for consistency in your responses.

Solution

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