Financial Planning For A Young Married Couple

Background

Question:

Explain the calculation of the insurance of the married couple Stephan and Dalgar.

Young Married Couple Stephan and Dalgar are having one child. One of the business associate of Stephan was seriously injured in an accident so there was uncertainty of his coming back to work. The injured john family was at a financial risk because of lack of insurance.

They do not have enough insurance cover. Marie asked Stephan to give a call to john so that he can help him in the same. Thus, on phone, you explained the couple about the financial planning and to disclose certain financial information. You assured them that information will be kept confidential. There is a need for completing the financial profile. It is necessary to disclose what they own, owe and what they earn. This information will be recorded in the fact finder form. You arranged a meeting with them to come to your office along with the financial information such as, the details of income, the details of insurance, expenses, superannuation and the investments. Stephan and Marie arrived at the office and you explained them the FSG. Stephan is of 36 years old and his wife is of 32 years. Marie is the weekend player and they have one son harry of 12 months old.

Purchase home 3 years back Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	$675,000
Mortgage	$440,000
Rate of interest on mortgage	5.48%
Mortgage repayment	$2,920
Current amount for offset	$32,000

Stephan is a chemical engineer working on a full time basis in a agricultural supplies company. For ten years, he has earned $ 145000 pa. Marie worked on a part time basis following the leave for maternity. Child care fee of $88 per day is received by Marie. Marie and Stephan decided to send harry to a local school at a cost $65000. Cash with bank and super annuation , Marie and Stephan has two cars worth $ 11000 and $33000 each.

It is clear from the above that they have one son, and to secure the future of their son, they need to go for the insurance. They have the total income $ 145000+ 88+65000+ 33000 = 189088

Conclusion-

A file note containing the client’s name shall be made. A promise is written to Marie and Stephan containing the FSG and the checklist of the information.

All the relevant information is collected from the John and Marie in order to provide them an insurance policy.

Calculation of superannuation-

Date of joining	Particulars	$
1/2/2004	Stephan Super annuation fund	260000
19/1/2004	Marie Super annuation fund	114000

In the above case, superannuation fund stands as a deduction while calculating the tax. Total amount of $ 374000 shall stand on exemption of tax

Super annuation fund provides death and permanent disability benefits.  The premium is $ 0.90 p.a. for the cover of $1000. This premium is deducted from the superannuation contributions. In a ASSF super fund, it increases the benefits twice that of the member’s annual salary. There is increase in the cover to $ 750000 with the help of this fund. There will be increase in the premium to $1.00 per $ 1000 which is twice that of member’s annual salary. It has provided the protection to income with a coverage of 30 to 90 days. The benefit period will be between the range 2 years to 65 years. Marie’s superannuation fund is providing TPD benefits of $ 120000. The premium is $ 143 pa. This premium is deducted from the superannuation contributions. The scale of premium is as follows-

Financial Information Collection

For every $ 500000, it is $ 1.19 pa and $ 1000 of cover.

For between 500001 to 1 million, it is $ 1.45 pa and with a cover of $ 1000

For between 1 million to 2 million, it is $ 1.65 pa and with a cover of $ 1000

Section 1-

Marie’s and Stephens only objectives are to provide for their son harry and to protect the house. For them, the life insurance policy and the House insurance policy is sufficient. This will help to provide fund after the death of the parents and to protect the house. As, the cost of the house is 675000 $, insurance policy of $ 800000 is sufficient and the life insurance policy shall be of worth $ 250000.

SOA-

Risk Management Strategies	Types of Insurance	Reasons
Protection of House	General Insurance	This will protect the house from thedamage through fire
Take care of their son	Life Insurance	Take care of their son even after their death.

Section 2- The Fact Finder-

Risk Assignment	Stephan	Marie
Repayment of Mortgage	High	High
Health Issue	High	Low
Fluctuation in Income	Low	High

 Section 3- Analysing the Data

Section 3 Part A-

• Review of the Fact Finder-

It shall include the details of the need, objectives of Marie and Stephan to go for insurance.

• Current Position-

Their current position shows that they are looking for the protection of their house and the care to be taken of their son Harry

• Debt Management-

They are having enough money to pay off the mortgage debt on the house.

• Risk / Protection-

The risk involved is with regards to the health of Stephan who is a smoker and it can be protected with the help of medical insurance.

• Present and Future taxation issues-

The taxation benefits is available to both the couples on their super annuation fund.

The needs of the couples is to preserve the assets which is for the short term. This is from the two main objectives of the Dalmar. The value in dollar is $ 440000. Another objective of the couple is the protection of the income. This will help the Dalmar in maintaining his life if either of them dies. It is for the short term. Value in dollar will be the salary upto $ 205000 salary and the contribution of $ 19475. In order to provide harry for future education that will be of medium term for which the value is $ 65000. For the purchase of property in the coming future Medium term.

Assessor feedback will be- To provide for harry for his future education. $ 65000 for the medium term. This is because, the couple is trying to send their son in a school where the total fees is $ 65000. Thus, the term of this goal is $ Medium term.

Goals/need/objectives	Timeframe	Dollar value
Asset Preservation – One of the Dalmars two main objectives is to protect their home	Short Term	$440,000
Income Protection – the Dalmars wish to maintain their lifestyle if either of them died or suffered a prolonged illness	Short Term	$145,000+$60,000 salary and $13,775+$5,700 SG contribution
to provide for Harry, this includes his future education	Medium Term	$65,000
The Dalmars stated that they would like to purchase property in the future	Medium Term	$ 675000
Insurance on the home content	Medium term	$ 100000
Insurance on the home building	Short term	$ 75000

	The questions	Your response	The assessors feedback
(a)	Do Marie and Stephan need a debt management solution?	No	No Their payment towards the mortgage is less than their total income.
If ‘yes’, why? If ‘no’, why not?	They currently have a positive net cashflow after expenses and taxes. However, they have stated they wish to protect their home and may require advice on reducing their mortgage faster.
(b)	Do Marie and Stephan currently have adequate life and TPD cover?	No	No.. TPD is not adequate. The TPD benefits is $ 120000 and the premium on it 1.43 which is relatively less. Stephan should have atleast $ 1370 m of TPD. This will help to meet the pay for harry’s childcare and the future education.
If ‘yes’, why/how? If ‘no’, how much should they have, and why that much?	Stephan should have additional $1,370m and Marie should have an additional $460K. This is needed to payout their home loan, meet current living expenses, pay for Harry’s childcare and future education, account for foregone superannuation savings and cover any medical/funeral costs.
(c)	Is their current life and TPD cover provided through superannuation the best alternate?	No	No TPD is only paid off when it needed. It is subjected to tax advantage as well.
If ‘yes’, why? If ‘no’, why? What could be the alternative?	The TPD is unlikely to be paid out when it is needed if Marie or Stephan if it is deemed they are still able to work in any occupation for which they are reasonable qualified for rather than for their own occupation. There are tax advantages of having the premiums paid through their super however Stephan plans only offers up to $750K which is inadequate.
(d)	Do Marie and Stephan require any other insurance cover?	Yes	Yes.Protection of income and the preservation of asset. It will be 50% will be bifurcated into- Stephan- $ 100, Marie- $ 40 and Trauma- $ 80 in both the cases.
If ‘yes’, what type of cover? How much do they need? How should it be provided? If ‘no’, why?	Income Protection – $75% of gross annual salaries plus annual SG contributions. Stephan – $120K (rounded) Marie – $50K (rounded) Trauma – $100K each
(e)	Is there anything that could impact on Stephan’s and Marie’s ability to obtain insurance cover?	Yes	Yes.. Medical insurance cover will be impacted as Stephan is a chemical engineer and working with the hazardous chemicals. As, Stephan is having some health there is limitation of income insurance.
If ‘yes’, which cover(s)/why? If ‘no’, why not?	Stephan works as a Chemical Engineer, working with potentially hazardous chemicals. He also travels to rural and remote parts of Australia where access to suitable medical care may be limited. Further, Stephan has a pre-existing condition, asthma and he is a smoker.These factors may limit his ability to obtain Income Insurance. However, as long as he can show medical history to prove the condition is well managed, and he doesn’t have a history of regular hospital visits because of an asthma attack, he can generally still qualify for life insurance.
(f)	If Marie commences work from home, will this have any impact on her current or recommended insurance cover(s)?	Yes	Yes If Marie is working from home and leaving her job, the employer will stop paying insurance premium as well as there will fluctuation of income which makes it difficult to sustain the Income Protection Insurance.
If ‘yes’, which cover(s)/why? If ‘no’, why?	TPD. The event of business failure can bring on stress leading to disability. The insurer may prefer to waiting one to two years for the business to become establish before offering this cover. If Marie leaves her current employment her employer may stop paying her insurance premiums and the policy may not be portable. Marie is unlikely to get Income Protection Insurance if her income is fluctuating.
(g)	If Marie commences work from home, would she require any further insurance cover?	Yes	Yes
If ‘yes’, why and what would she require? If ‘no’, why not?	She will require insurance to protect her income
(h)	Are there any present and/or anticipated future issues associated with your recommendations?	Yes
If ‘yes’, why and what are they? If ‘no’, why not?	There can be fluctuation of income that can make Marie incapable to pay the insurance premium.
(i)	Are there any present and/or anticipated future cash flow implications associated with your recommendations?	No
	If ‘yes’, why and what are they? If ‘no’, why not?	Because Marie commences the work from home. So, there will be no other income except from the work so done
(j)	Are there any taxation considerations with the recommendations?	Tax will be levied if crossing the norms set.

Section 4- Part A- Strategy-

For every $ 500000, it is $ 1.19 pa and $ 1000 of cover.

For between 500001 to 1 million, it is $ 1.45 pa and with a cover of $ 1000

For between 1 million to 2 million, it is $ 1.65 pa and with a cover of $ 1000

The strategy that will best suit to Marie and Stephan is the income protection strategy. This will help to protect their income from salary and helps them to avoid the fluctuation in the income and to meet their debts. The income protection insurance helps to protect the income fluctuations. This will help them to take care of their son Harry, to pay off his school fees and to pay off the mortgage debt. Building up of income strategy helps to meet the various requirements. The couples are not having any other personal insurance. The total annual premium on the vehicle is $ 2800 pa. The insurance of $ 100000 on the home contents and $ 750000 on the home building. The estimated price of their home is $ 675000. There is a content excess of $500 and building excess of $1100. There is a cover of legal liability up to $ 20 million. Towards this insurance, $ 145 per month is paid by the couples. Dalgar is having private health insurance with a cover of $ 500. Premium paid towards this cover is $ 270 per month. It also include the health insurance rebate. These payments towards the insurance are not included in the general living expenses.

The product (name and URL link)	Why you think it may or may not be the ‘best fit’ for the couple	Indicate which product/s you will use in your plan
Term Life Insurance	It may not be fit to the couple as it is for the specific term insurance		NO
Whole Life Policy	It can be useful to the couple as it will help them to protect their entire life.	YES
Endowment Plans	It is  fit for the couple as it  is the payment of the amount after a particular term say ten years, fifteen years, etc.	YES
Unit Linked Insurance Plan	It is the insurance plus investment. So not fit for the couples.		NO
Money back policy	It is payment of the particular amount of money after a particular period of time. It fits to the couple.	YES
Answer here	Answer here	YES	NO

Superannuation Fund and Tax Deductions

 Statement of advice

Prepared for

Stephan and Marie Dalgar

Prepared by

Authorised Representative Number: 66666

AR Address

AR contact details

Authorised Representative of

KeyPlan Financial Planning
ABN: 1010101010
Australian Financial Services Licensee
Licence No. 101010
Head office: 88 Money Lane, Accumulation.

Executive Summary-

It shall consist of the need and objectives of the client. The reason for which the client is looking for the insurance. Here, in this case, the client is looking for the insurance basically for two reasons, one is for the protection of their house and the second one is the take care of their son Harry.

Objectives-

Knowing the objective helps to select the best insurance policy for the client. There are various types of policy available in the market such as, the endowment policy, whole life insurance policy, money back policy, etc.

Strategy and Recommendation-

Short term recommendation-

I recommend that Marie:

• increase the current level of life and TPD insurance cover in her superannuation fund to $725,000
• commence a self-owned income protection insurance policy to the maximum allowable limit of 75% of his current salary and his superannuation guarantee (SG), on an agreed value basis.
• commence a self-owned trauma insurance policy with a sum insured of $100,000.

I recommend that Stephan:

• increase the current level of life and TPD insurance cover in his superannuation fund to the maximum allowable and commence a self-owned income protection insurance policy to the maximum allowable limit of 75% of his current salary and his SG, on an agreed value basis
• commence a self-owned trauma insurance policy with a sum insured of $100,000.

I recommend:

• depositing surplus cash flow into your offset account, until Marie chooses to start working for herself. This should reduce the time required to pay off the home loan while leaving cash free to pay short term requirements such as holidays and near term living costs should Marie start her consulting business.
• your existing home and contents insurance and landlord’s insurance be reviewed to ensure it is sufficient. The Dalmars have indicated that the building would cost more to replace than it is insured for.

Medium Term- One to five years-

The medium term recommendation made by me are-

• Use of fund to protect the house. The couples are paying the mortgage of their house. Their important objective is to protect their house. I recommend them to go for general insurance in order to protect their house from the uncertain event that may happen.
• Fund is investment for the schooling of their son harry. It is approximately $ 65000.
• It also helps protecting the income and thereby, avoid the fluctuation of income.

Expected outcome if the advice is implemented-

The expected outcome is the advice is implemented is the receipt of the amount around $ 645000 after the maturity of the period. (Cockerell, 1957)

Risk in the advice-

If the Client fails to pay the amount of premium, his policy may be lapsed, is the risk involved in the same.

Fees and commission summary-

For per policy the fees is $ 1000. (Cockerell, 1957)

Your existing insurance-

Personal insurance	$ 700000
Car insurance	$ 11000
Home contents Insurance	$ 100000
Health insurance	$ 100000

Income and Expenses information-

	Client 1	Client 2	Total
Assessable income	$ 100000	$ 200000	$ 500000
Income after tax	$ 80000	$ 150000	$430000
Yearly expenses	$ 5000	$ 20000	$ 40000
Estimated surplus	Answer here	Answer here	Answer here

	Value	Liability	Net value
Home	$ 5000	$ 1000	$ 4000
Home contents	$ 100000	$ 20000	$ 80000
Motor vehicles	$ 11000	$ 2000	$ 9000
Personal assets	Answer here	Answer here	Answer here
Employer superannuation	$ 2000	$ 1000	$ 4000
Savings account	$ 1000	$ 5000	$ 2000
Term deposit	$ 2000	$ 2000	$ 5000
Other	$ 4000	$ 3000	$ 1000
Investment assets	Answer here	Answer here	Answer here
Shares	Nil	Nil	Nil
Net worth	Answer here	Answer here	Answer here

 Income, tax and cash flow

Tax calculation	Marie	Stephan	Combined	Comments
Income from employment
Salary	60000	145000	205000	Combined salary will be considered
Salary sacrifice	0	0	0	It is Nil
Salary after salary sacrifice	60000	145000	205000	Combined salary will be considered
Rental income				Owned house so no rental income. No house is allowed on rent.
Unfranked dividends				No investment is shares are made by the couple.
Franked dividends				No investment is made in the franked dividend.
Franking (imputation) credits				No credit is made
Interest				Interst on the mortgage is paid by the couple
Other income (e.g. taxable benefits, trust income, investment income)				Superannuation profits are received by the couple.
Capital gains < 1 yr				No capital gains
Capital gains > 1 yr				No capital gains
Tax-free component of capital gains				No tax free component of capital gains
Assessable income	60000	145000	205000	Combined assessable income will be considered.
Deductible expenses				No deductible expenses
Donations	50	650	700	Combined donation will be considered.
Other	Answer here	Answer here	Answer here	Answer here
Taxable income	Answer here	Answer here	Answer here	Answer here
Tax on taxable income	Answer here	Answer here	Answer here	Answer here
Non-refundable tax offsets (e.g. LITO/SAPTO)
Medicare levy	Answer here	Answer here	Answer here	No medicare levy.
Medicare levy surcharge
Franking rebate
Refundable rebates and offsets	369	369	738	270/(1-0.1855)*0.1855 split evenly – health insurance No childcare rebate
Total tax	Answer here	Answer here	Answer here	Answer here

 Presenting Part A the SOA-

The choice for the selection shall depend upon the needs of the Couples. They want to protect their house and take care of their son Harry. Hence, they can go for the Money back policy or the whole life insurance policy.(Ben Mahmoud, Larrieu and Pirovano, 2013)

Part B-

I will consider the points that are not satisfying the client. I will proceed the conversation by finding out what is dissatisfying the client and will try to find alternative in order to convince them. Client should have a faith in both company and policy. This will help them to engage. From the point of the compliance perspective it will help to comply with the need and the policy. I should explain all the points in detail to the client and should find out the financial capability of the client. This will help to find out the stability of the client. It also helps to check the credibility of the client. Thus, the credibility of the client helps to find out the exact requirement and the financial need and whether the client is financially strong to pay off the debt. (Ben Mahmoud, Larrieu and Pirovano, 2013)

	Marie	Stephan
Current value	200000	645000
Tax-free component	114000	260000
Taxable component:
Taxed element
Untaxed element	65000	65000
Preservation:
Preserved	Nil	Nil
Unrestricted non-preserved	Nil	Nil
Restricted non-preserved	Nil	Nil
Contributions:
Non-concessional contributions:
Year 1	Nil	Nil
Year 2	Nil	Nil
Year 3	Nil	Nil
Year 4	Nil	Nil
Concessional contributions:
Year 1	Nil	Nil
Year 2	Nil	Nil
Year 3	Nil	Nil
Year 4	Nil	Nil

Income protection insurance details

Life insured

Owner

Policy type

Company

Policy number

Benefit amount

Waiting period

Benefit payment period

Annual premium

Marie

Dagher

Money back policy

700000

15 years

1000

Stephan

Daghar

Money back policy

700000

15 years

3000

Trauma insurance details

Life insured

Owner

Policy type

Company

Policy number

Benefit amount

Comments

Annual premium

Marie

Daghar

Money back policy

200000

1000

Stephan

Daghar

Money back Policy

100000

1000

 Risk needs

Insurance needs — Life and TPD
	Marie ($)	Stephan ($)
C	Clean-up fund	Settle all outstanding accounts, including credit cards, bills and funeral costs
Estimated funeral/medical costs	Nil	Nil
Total	Nil	Nil
I	Income fund	The lump sum required to produce a level of regular income that maintains the family’s living standard for a defined period
Estimated unpaid spousal duties	500	500
General living costs excluding childcare and mortgage payments	1000	1000
Remaining spouse’s net income	Nil	Nil
Income shortfall if other spouse died	Nil	Nil
Annual income shortfall until Harry leaves university	1000	2000
Total	2500	3500
M	Mortgage fund	The amount necessary to discharge any existing mortgages
Home loan	675000	675000
Total	675000	675000
E	Education fund	Lump sum determined by calculating each child’s education costs and multiplying by the number of years of school and/or university remaining
Childcare costs for Harry until school age (four years)	500	400
Total	500	500
Education costs for Harry	65000	65000
Total	66000	66000
Total	66000	66000
R	Retirement fund	The lump sum necessary to provide adequate funding for retirement
9.50% employer SG contributions	200000	400000
Savings foregone	Nil	Nil
Total	200000	400000
Less value of realisable assets	Nil	Nil
Superannuation	114000	260000
Offset account	Nil	Nil
Less existing life/TPD insurance cover	120000	120000
Recommended sum insured	Nil	Nil
Recommended sum insured (rounded to the nearest $10,000)	Nil	Nil

Reference-

Ben Mahmoud, M., Larrieu, N. And Pirovano , A. (2013). Risk propagation assessment 1for network security. Hoboken , N. J.: ISTE Ltd/John Wiley and Sons Inc.

Cockerell, H. (1957). Insurance. London: English Universities Press.

Hardy, E., Huebner, S., Michelbacher, G. And Mudgett, B.(1919). Insurance. New York: Alexander Hamilton Institute.

Insurance. (1998). Luxembourg: Office for Official Publications of the European Communities.

Raynes, H. (1960). Insurance. London: Oxford University Press.

Atkins, D. And Bates, I. (2008). Insurance. London, U.K.: Global Professional Publishing.

Bedore, J. (1991). Insurance. Washington, D.C.: Office of Industries , U.S. International Trade Commission.

Bickhelhaupt, D. (1989). Insurance. Columbus : College of Business, Ohio State University.

Dickson, D. (205). Insurance risk and ruin. Cambridge, UK: Cambridge University Press.

Elliott, C. And Vaughan, E. (1972). Fundamentals of risk and insurance. New York: Wiley.

Himick, M. And Bouriaux, S. (1998). Securitized insurance risk. Chicago: Glenlake Pub. Comany Ltd.

Williams, C. And Heins, R. (1976). Risk management and insurance. New York: McGraw-Hill.