Trauma Cover and Superannuation in Australia

This assignment analyzes trauma cover within the context of Australian superannuation funds. Students are expected to research and discuss various aspects of trauma insurance, including its definition, benefits, limitations, and factors affecting individuals' choices regarding incorporating it into their super fund. The analysis should consider the policy implications, financial considerations, and individual circumstances relevant to Australians seeking trauma cover through their superannuation.

1202AFE Financial Planning 1
Trimester 2, 2017
File Note – Statement of Advice
Client's name: Carl Molloy
Date of contact: 1 August 2017
Re: Initial Appointment
FSG and adviser profile
Carl was handed Financial Services Guide (FSG) version 4 010217 and my Adviser Profile
at the interview on 1 August 2017. The FSG was explained to him.
Scope of advice
Full statement of advice (SOA). Specifically, the SOA will provide advice on the achievement
of wealth creation and lifestyle goals, personal insurances (that is life, total & permanent
disability (TPD), income protection (IP), trauma and private health insurance),
superannuation (including salary sacrifice, personal tax deductible contributions and/or after
tax contributions) and taxation planning where relevant.
The SOA excludes any budgeting and cash flow analysis, as well as any advice on debt
repayment, social security and estate planning. Client to be advised on the risks of not
receiving advice in these areas.
Current situation
 Carl is the physiotherapist at Greenslopes hospital with the current CTC of $84000
plus superannuation
 Currently he has $31000 saved and he wants to leave minimum balance of $5000 in
the bank as an emergency fund
 He has an additional $1250 per month of surplus funds to invest
 He has a car worth $35000 as well as some home contents worth around $25000
 The Superannuation fund balance of $33,980 and $8,960 in Grand Super and Best
Super funds from his last statements at Uni.
 The liability Fee-Help debt which currently has balance of $29,800 and the Carl
needs to repay compulsory amount
Potential issues / special consideration

1202AFE Financial Planning 1
Trimester 2, 2017
 The issue is related to the Job security in future. The economy is changing that might
be influence on the job. Job security is the major concern for the Client in the future.
 Another issue is the increase in liabilities and expenses in future that might impact
the cash flow of the Carl.
 The Health issues would be the problem at the certain period of time. Apart from that
life insurance is also compulsory. As per their profile Carl didn’t get any insurance
that would be the major issue in the long run (Edge, 2017).
Objectives
The Carl has many objectives in short and long run which is related to the financial
and non financial aspects. As per the interview and analyses of the profile there are
certain goals and objectives which are mentioned below.
 Financial goals-
1) Carl has to deposit $105K in 4-5 years of time
2) Carl has a holiday goal i.e. 10k in July 2018
There are no non financial goals of the Carl from the analysis of the profile of
the Carl.
Risk profile
 As per the analysis of the risk profile of the Carl, it is identified that advisor asks Carl
about their insurance portion and Carl was not sure about their insurance plans he
was taken or not. The risks are related to health and life insurance section is high
and Carl needs to invest in their insurance and investment plans. Apart from the
superannuation fund the Carl needs to invest in the insurance part that will gives the
good returns at the time of maturity (Canstar, 2017).

1202AFE Financial Planning 1
Trimester 2, 2017
Wealth creation recommendations – outside superannuation
1. Sum up $105000 for house deposit in next 4-5 years.
2. Purchase of a new house worth $500000 till the end of five years from now, so the
required initial payment by Carl is around $105000 which can be gathered with the help
of obtaining investments in various options from cash deposits, fixed interest, property,
Australian shares and international shares.
Recommended strategy:
 It is recommended that the client should invest the savings $26000 in mutual funds
which are having moderate risk portfolio.
 On the other side Carl need is to start saving more amount of money than what he is
saving already saving. This money should be invested into managed investment
scheme which consists of several types of investments which will results to good
amount of returns at the end of the required period.
 Carl is having $1000 as current saving per month which is possible to be increase to
$1250 from this month so it will result to savings of around $15000 in a year and
around $75000 in five years
 This monthly saving is needed to be invested into managed investment scheme
which will have good returns in the period of 4-5 years. Managed Investment
scheme- diversified Funds is recommended for Carl due to its liquidity and mixed
portfolio combination (Lennon, et al., 2014).
 Balance Fund approach is considered over the conserved fund approach as it is
providing with only 5.5% of annual returns which will lead to delay in the
achievements of Carl’s goal it will take $331 more to save on monthly basis to
achieve in 5 years (Moneysmart, 2017).

1202AFE Financial Planning 1
Trimester 2, 2017
 Growth Fund is providing returns of around 9.2% but it is having 75% growth assets
and in the case of adverse situation it may result to loss of the investment. Secondly
Carl’s profile and his behaviour show that he can afford lower risks.
Advantages of strategy
 The client investment is secured so there are least chances of losses in the long term
 There is a high possibility of assured returns in this tenure period due to diversified
investments in the Managed investment scheme with diversified funds having 40%
defensive and 60% growth assets.
 This investment needs to review again and again so it doesn’t affect regular workings
of Carl. This investment scheme is also fulfilling the requirements of Carl to purchase
house in 4-5 years.
Disadvantages of strategy
 Due to high amount of security the opportunity of possible higher returns from other
portfolios are lost. Such as growth funds, high growth funds and single sector funds
like Australian property fund which is having 8% possible returns, international
property funds and Australian share fund 10.5% and international share funds having
12% returns.
 In some extreme situations mutual funds may also results to loss of returns.
Alternatives considered
 In case of high risk capacity: Carl can invest in bit coins, futures of shares in share
markets and commodities.

1202AFE Financial Planning 1
Trimester 2, 2017
 In case of least risk taking: Carl can invest in government bonds, fixed deposits and
Recurring deposits.
 Australian property fund is also an option in case of managed investment scheme-
single sector fund as it is providing 8% returns which meet the desired goals of Carl.
But it is having less assurance of maturity and assured returns in this period of time.
Lifestyle recommendations
1. 3 months holiday around USA in the month of July 2018 expected expense $10000.
Recommended strategy:
 Carl can take $10000 from the saving account for the holiday and adjust the housing
deposit for the period of 5 years where it is required to save $1129 per month for a
period of 5 years.
 In case Carl manages this sum of money by saving more amount of money than it is
required to save only $1256 per month for a period of 4 years only (Moneysmart,
2017).
 The sum of $10000 can be invested for 11 months in the fixed interest funds single
sector having 5% annular returns which will amount to $250 at the beginning of July
2018.
Advantages of strategy
 Carl can purchase his own house one year before the expected time in case he
manages this sum of money on his own
 In the latter case Carl will have to wait for a period of five years to purchase his own
house.

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Trimester 2, 2017
Disadvantages of strategy
 Taking amount from saving account will lead to delay of house purchase from one
year. There may be chances of boom in the property sector in that one year.
 Carl will have to save $7 extra for this period of time.
Alternatives considered
 Take loan from the bank for the holiday and repay it in instalments. This is not
recommended as interest paid to bank is higher than the interest income from saving
amount which will result to loss of funds. On the other side Carl’s goal of purchasing
house is fulfilling in case of withdrawal from savings accounts.
Wealth creation recommendations – superannuation
1. Goal
The objective of the client is to get high return on the money. He wants to invest in the
superannuation funds to get maximum returns in the long term.The current savings
account balance is 31,000.The interest rates is low so it might be influence on the
savings so he wants to diversify his investment into the superannuation plans. The
superannuation goal of the client is to protect the sufficient money from any injuries and
serious illness in future so that he needs a good amount takes care of its expenses. The
priority of the Carl is sorting the superannuation funds and invests wisely to get good
returns in the future (Finder, 2017). As per the analysis of his risk profile, Carl has
invested in two funds i.e. Great Super fund and Best Super fund with the available
balance of $33,980 and $8,960.
Recommended strategy:

1202AFE Financial Planning 1
Trimester 2, 2017
 As per the current statements of the Carl it depicts that latest superannuation
statements are accumulated funds and it indicates that great super fund is invested
in balanced investment option and Best super is invested in default lifecycle option.
The current risk profile of the Carl is balanced profile. As per the analysis of the
profile Carl should invest in the Managed investment scheme of International share
fund that would give the high returns i.e. 12% subject to the market risk. This fund is
appropriate for the Carl because the risk profile of the Carl is good and he will take
enough risks to get good returns from this fund. Moreover the fees of the fund are
1.0% per annum (Tium, 2017).
Advantages of strategy
The advantages of this strategy are that Carl should diversify their investment into other fund
that gives the high returns to the Carl. If the Carl sacrifices some amount of pay i.e. $1250
per month from his salary that would give the tax exemptions benefits and get good returns
on the investment. The salary sacrifice of $1250 per month is contributed to the
superannuation fund will gives the 12% of the return into their contribution (LifeBroker,
2017).
Moreover, the Carl can carry forward their previous Superannuation balance i.e. $33,980
and $8,960 can be deposit into the particular fund will give the guaranteed return.
Disadvantages of strategy
 The main disadvantage of this fund is this risky investment and chances of interest
rates and low according to the market conditions in the future that will gives the low
rate of interest.
Alternatives considered
 The Carl should invest in the diversified growth funds that will give the guarantee
returns. The balance profile of Carl also indicated that Carl should invest more into
that plan who invest more into defensive funds that will give the fix returns.

1202AFE Financial Planning 1
Trimester 2, 2017
Wealth protection (insurance) - recommendations
1. Life insurance
 As per the interview of the Carl it is identified from the profile the Carl should take the
Life insurance cover to secure their future from any uncertainty.
 The Carl should take the insurance cover within the superannuation fund.
 The advantages from the superannuation fund will give the benefits to Carl in his
financial position, the premiums for that insurance are deducted directly from his
superannuation balance account there is no need to open extra bank account for
insurance. Apart from that there are no requirements for the medical examination if
the Carl selected the ‘Standard cover’ of the insurance cover by the super fund. This
option is beneficial for the Carl because in Super fund the cost for the premium is low
as compared to separate Life insurance plan (Agnew, 2013). Moreover, there will be
an advantage of tax benefit for the Carl because he will sacrifice his salary part for
the cost of premiums. It is tax effective for the employees.
 The disadvantage of the life insurance through superannuation plan includes the
amount of life insurance cover may not cover the sufficient needs of the Carl. The
standard insurance cover not gives the extra benefits to the Carl. Moreover, the
major disadvantage of this superannuation plan that premiums paid from super
contributions indicates that the less money for the investments. It is difficult for the
Carl to invest in the other sources. It is also affect the balance of the superannuation
fund that will reduce the super fund amount of superannuation.
2. Total and permanent disability (TPD) insurance
Carl should take TPD insurance that will protect him from the uncertain conditions in
future. The Carl should take the TPD cover because he is an individual but in future there
might be some dependants after marriage. So in case disability this plan gives the financials
security to the family at the time of uncertainty.
TPD is good for ‘Own’ occupation criteria because in this condition Carl can meet the criteria
as he is not able to perform in his own occupation. It provides the highest opportunity to
make successful insurance claim. In this cover the premium are high and it is not available
for certain categories.
Carl should take the TPD under Superannuation that will give the high tax exemptions for
young people.

1202AFE Financial Planning 1
Trimester 2, 2017
 The advantages of this plan are same as insurance plans like premiums
are less.
 There is automatic acceptance up to certain amount. No need for medical
verifications.
 The disadvantage of this plan is the beneficiary cannot get the benefit till
retirement (Basu and Andrews, 2014).
 The disadvantages of this plan that impact the superannuation balance if
the Carl misses any premium in future.
3. Income protection (IP) insurance
 Income protection insurance is the cover in case of miss-happening with a person.
As per the information provided by Carl there are lower chances of such problems at
the work place and home but accidents may happen at any point of time so it is
suggested to take income protection insurance by Carl. As it provides income
assurance up to 75% of annual income in case of any tragedy in terms of accidents
or illness where employee is not able to work in the office. It is mainly divided in to
two types waiting period and benefit period prior is dependent upon the length of the
injury or illness where premium tends to lower with the rise in the time waiting time
period. On the other side benefit period considers the maximum time for a claim it
starts with the end of 30 days of taking the insurance and covers a period of 2 years
of illness of disability.
 Carl must cover 60% of his income under the insurance
 The waiting period he must take should be 2 years as he is does not a smoke so he
having lower chances of health issues but accidents may happen any time so taking
positive scenario it is recommended to take waiting time of 2 years. Benefit period
should be around 1 month. As Carl is already having 60 days leaves for such kind of
tragedy. So this one month can be used after lapse of two months.

1202AFE Financial Planning 1
Trimester 2, 2017
 It should be taken through superannuation fund as the premium are easily paid
through super balance which is having no impact on other day to day activities
(Finder.com.au, 2017). The second advantage is these premiums costs less than
taking a separate insurance as the department dealing with superannuation takes
bulk insurances so it is cost effective.
 There is tax benefit in case this insurance is taken outside super fund so it is a
disadvantage of taking this insurance under super fund. It is also considered as
income when such claim is received as it replaces the original income of Carl if
taken. It is also considered as reduction in the retirement savings as premium is paid
from this fund.
4. Trauma insurance
 Trauma insurance is related with specific injury or illness it covers the loss due to
such instance to any person. It is also known as critical sickness which includes a list
of several dangerous diseases such as strokes, cancer and heart attack or injuries
like
 It is recommended for Carl to take Trauma insurance as his mother is already having
such problem in the past so there are too low but chances of having such kind of
problems in future.
 It is held outside superannuation after year 2014. So it cannot be clubbed with
superannuation (ASIC, 2017).
 The advantages for the recommendations are there are possibilities of having any
kind of tragedy at any point of time in life. Trauma insurance covers severe diseases,
Carl’s mother is having a small problem but it is a clue that he might be face similar
situation so it is suggested to take this insurance.
 Taking Trauma insurance leads to affecting day to day activities of Carl as extra sum
of money needed to be paid for this insurance. There is no tax relaxation in this
insurance.

1202AFE Financial Planning 1
Trimester 2, 2017
5. Private health insurance
 As per the overall analysis of the Carl profile it can be identified that Carl should not
take any cover apart from the insurance above because it will affects the cash flow of
the Carl and the present condition of the client is quite healthy so it may reduces the
chances of risk of ill health in future (Black, et al., 2013). Moreover, life insurance and
TPD is sufficient to meet the needs of the Carl in any uncertain situations.

1202AFE Financial Planning 1
Trimester 2, 2017
REFERENCES:
AFRM (2017). Own" Occupation TPD vs "Any" Occupation TPD. Retrieved from:
http://www.afrm.com.au/research-and-contract-analysis/own-occupation-tpd-vs-any-
occupation-tpd/
Agnew, J. (2013). Australia’s retirement system: Strengths, weaknesses, and
reforms. Center for Retirement Research Issue Brief, 13-5.
ASIC (2017). Trauma cover. Retrieved From: https://www.moneysmart.gov.au/insurance/life-
insurance/trauma-cover
Basu, A., & Andrews, S. (2014). Asset allocation policy, returns and expenses of
superannuation funds: recent evidence based on default options. Australian Economic
Review, 47(1), 63-77.
Black, S., Kirkwood, J., Williams, T., & Rai, A. (2013). A history of Australian corporate
bonds. Australian Economic History Review, 53(3), 292-317.
Canstar (2017). Is it sufficient to have life insurance through your super fund?. Retrieved
from: https://www.canstar.com.au/superannuation/insurance-through-super-yes-or-no/
Edge, (2017). Choosing a Superannuation Fund. Retrieved from:
http://www.edge.net.au/fileadmin/user_upload/Choosing_a_Superannuation_Fund.pdf
Finder (2017). TPD Insurance Explained. Retrieved from: https://www.finder.com.au/what-is-
tpd-insurance
Finder.com.au (2017). Income Protection Through Superannuation. Retrieved from:
https://www.finder.com.au/income-protection-super
Fisher, G. S. (2014). advising the Behavioral Investor: Lessons from the real World. Investor
Behavior—The Psychology of Financial Planning and Investing, 265-283.
Lennon, L., Evans, R., George, R., Dean, F., and Parsons, S. (2014). The role of Managed
Aquifer Recharge in developing northern Australia. In OzWater Conference, 8pp.
LifeBroker (2017). Frequently Asked Questions. Retrieved from:
https://www.lifebroker.com.au/faqs/difference-insurance-inside-and-outside-super
Moneysmart (2017). Savings goals calculator. Retrieved from:
https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/savings-goals-
calculator

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Trimester 2, 2017
Tium (2017). TPD Insurance and Superannuation: The Pros and Cons. Retrieved from:
https://www.otiumgroup.com.au/tpd-insurance-superannuation-pros-cons/

1202AFE Financial Planning 1
Trimester 2, 2017
Appendix 1 – Future value (FV) calculations
Particulars Amount
Salary Yearly $84000
Tax Contribution $18847
Salary Sacrifice $1250
Take home Pay $48,903
In case holiday funds are managed from personal resources:

1202AFE Financial Planning 1
Trimester 2, 2017

1202AFE Financial Planning 1
Trimester 2, 2017
In case Carl is taking holiday expenses from the savings and then it is required to save
$1129 from now.
Investing $10000 for 11months for holiday
https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/savings-goals-calculator

1202AFE Financial Planning 1
Trimester 2, 2017