Personal Insurance Advice for Risk Management Strategies

Personal insurance advise for an individual and its risk management strategies using various
applicable life insurance, others policies
Basic Personal Profile of Anna:
Anna Age: 38 Years (Profession: Commercial artist)
Anna’s husband died 1 year before.
Anna with her son Jason live in their family home
Anna has one child: Son Jackson Age: 10 years
Superannuation fund with interest of 9.5%
Anna’s superannuation fund offer following benefits,
 Life/Death insurance –Generally till the age 65 or 70
 Total and permanent disability (TPD) cover
 Income protection cover
As in the above given case, we see Anna doesn’t have any personal insurance cover but she
has Life insurance under her Superannuation fund. Life Cover she has got under
superannuation could be enough to cover her for any required life insurance and there is no
need for any additional cover on this front.
Insurance helps a lot, especially at the time, when the things are going wrong and you require money.
There are many policies or insurances available:
 Life insurance – She already has under her superannuation fund, but it generally last till the age of
65 or 70. So may be after the specified age she may required life insurance if she has any dependent
upon her after her retirement. Also, by that time if everything go as planned Jackson would start
earning and there won’t be any need for life insurance cover after the age of 65 for Anna.
Below analysis I have given just in case she required insurance cover, besides her existing
cover.
The amount of cover she requires depends upon the money her family would have:
 Receive –She receives money from superannuation, also from her savings and from the
previous insurance policies that her family has. There is also paid leave from which she can
receive money and as per the given text she has one son and one sister, who will supposed
to take care of Jackson in the absence of Anna so we have to see what type of support the
family could provide to her.
Asset:
 House
 Car
 Some amount in Current Balance in a cash management account. (This includes
Anna’s savings which she kept for Jason’s secondary school fees and also there are
some cash for life insurance remaining payout )
 Superannuation fund which will give her interest of 9.5%
 Need – Paying any existing mortgage and other debts (if any), child education fee, all living
expenses-daily and monthly, plus any other expenses she might have on regular basis.
Liability on Anna:
 There is some remaining part of mortgage on Anna
 Credit Card (No dues)
 Other monthly expenditure
 Jackson education fee
 Regular daily/monthly expenses

The difference between these is the amount of cover you should get.
Recommendation for Anna:
Anna should get life insurance coverage of 10 to 12 times at least of her annual income. This is
the world prescribed limit for getting life insurance coverage for a person.
For example if she has annual income of $ 600000 per year
She should get insurance coverage of $600000*12 or 10 = $7200000 or $6000000
So, Anna’s insurance coverage should be in the range of $6000000 to $7200000
She can think of increasing it as her annual income increases.
Anna should get at least 3 quotes of premium from different insurance providers and she chose one
which give her maximum coverage with least premium. If it includes accidental benefit with minor hike
in premium she can think of buying this.
Anna should clear her mortgage debt from her superannuation fund after getting it post her retirement
from job.
(ii) Outline the premium strategy that would be most appropriate for Anna and in
substantiating your answer, ensure you provide the advantages and disadvantages of the
different premium options available (premiums are not required to be calculated or shown).
(5 marks)
Someone with the age of 38 years, if take $ 500,000 Insurance cover.
Need to pay Level Annual premium of $2000 per year.
Here is a quick calculation:
Suppose with above example person dies at the age of 80.
She will pay premium for 42 years totalling $84000.
Her dependent will receive payment of $500,000 when she died at 80.
So, net gain $500,000 - $84,000 = $416,000
So, risk reward ratio in whole life term policy is excellent. Always take whole
life policy which remains in force till your death with very nominal premium as
can be seen in above example.
In case of term policy, which generally give cover for 10, 15, 20, 30 years, if
one died after the end of policy term no benefit her dependent will get. So term
policy may be cheaper than whole life policy, but, if it terms ended and you
want it to get extend, its premium may jump even more than 10 times.
So, it is best to buy whole life policy with level premium option.
Level premium for whole life policy considered best, where whole life premium
remains the same, where as in stepped up premium it is keep on increasing as
your age increases.
(Refer to Level premium and Stepped up premium discussed in separate section of
this assignment)

(b) Outline the step-by-step process of how you would present and implement this advice
with Anna. This includes your client engagement, compliance and legislative requirements
as well as the underwriting process. (10 marks)
Anna need to contact an insurance advisor or go to an online portal of
Insurance dealer/advisor and pay the premium amount as per final discussion
with agent of company and it can be bought online or even over the phone
call. These days it is very easy to buy even insurance products.
If a person’s age is too high than he/she may required to go for medical check
up and based on that Insurance Company will issue policy. If medical report is
not satisfactory they may increase the premium accordingly to adjust the risk
factor.
Generally, Underwriter of policy looks for these things:
Medical/Health Records of client, Driving History, age (Mortality rate - number
of death per thousand of different age group) before issuing policy.
You may require presenting your identity proof, age proof certificate and
medical certificate if age is over 50-60 years (as prescribed under the
Insurance rule of respective country)
After all the formalities are done, company issue policy document within 2 to 8
weeks depending upon medical records and some other factors.
Policy documents can be downloaded through company’s website or company
may send it to your given mail ID.
One has to pay premium of the policy every year before its expiry to keep
his/her policy in force and take full advantage of it when any unfortunate
things happen to policy holders.
Beneficiary of policy holder must be informed well in advance about the policy
and its benefit and also what is the procedure to take benefit of it, if required at
any point of time during policy is in force.
Regulation of Life insurance:
There are two principal regulators in Australia who regulates the Australian life insurance industry:
 The Australian Securities and Investment Commission (ASIC)
 The Australian Prudential Regulation Authority (APRA)
ASIC and APRA both have responsibility to protect the rights of consumers and business.
 Disaster proof your finances – If Anna really thinks that she has some important
documents/financial records which required insurance from any kind of unfortunate happening she
may think of protecting it through proper disaster proof insurance.
 Renewing your insurance - Always look for better deal when renewing your insurance coverage.
Start looking well in advance for better premium (fewer premiums) with best and comprehensive
coverage for your all types of insurance coverage. Get least three quotes from insurance provider and
choose one which provides you comprehensive coverage with cheapest premium.