Comprehensive Case Study: Insurance and Financial Planning for Smyths

This case study delves into the financial situation of John and Elsbeth Smyth, a young couple with a child, who seek advice on their insurance needs following a colleague's unfortunate accident. The study outlines their initial phone consultation, data collection process, and current financial status, including income, expenses, assets, liabilities, and existing insurance coverage. It highlights their primary objective of protecting their home and ensuring their son's well-being, with a focus on assessing the adequacy of their current insurance and identifying potential gaps. The case concludes with a review of the information gathered, setting the stage for further analysis and recommendations. This assignment solution is available on Desklib, a platform providing valuable study resources for students, including past papers and solved assignments.

The case study Section 1 — Meeting your client
The first phone call
John and Elsbeth Smyth are a young married couple with one child. Recently Chris, a business
associate of Elsbeth, who also has a young family, was seriously injured in a vehicle accident that has
resulted in uncertainty about his ability to return to work. John and Elsbeth have also learned that,
due to inadequate insurance cover, the family of the injured work colleague is now under financial
stress. They do have some insurance cover themselves, but are now unsure if it is adequate or
suitable for their needs. Recalling a positive experience, she had with you a few years ago on
another financial matter, John and Elsbeth call to see if you if you can help them with their insurance
needs.
Over the phone you explain to John and Elsbeth the financial planning process and why you will
need to ask the couple for certain types of financial information. You stress that any information
they give you will be treated confidentially and will only be used to help you recommend an
appropriate course of action that the Smyths should consider to ultimately meet their needs. You
give them information concerning privacy, and you and your firm’s capability, and mention that
other disclosure issues are in the firm’s financial services guide (FSG) that you will send to them.
You go on to explain that part of the information gathering will include the need to complete a
financial profile. This means that they will need to tell you what they own, what they owe, what they
earn and their living expenses. All this information will be recorded in a fact finder form which you
will compile.
You arrange a date and time for them to come to your office. You ask them to bring along as much
financial information as they can to the meeting, including income details, expenses, insurance
details, superannuation and investments. You also ask them to think about what specific financial
goals they want to achieve and any issues they wish to discuss at the meeting.
When you have concluded the call, you make a file note about the conversation including the date,
the potential clients’ names, and any other items that were discussed. This is the start of your paper
trail. You also complete some of the initial details in the data collection form as shown in Table 1.
Finally, you write to Elsbeth and John, as promised during your initial conversation, and include the
FSG and a checklist of the information they need to bring to the meeting.

Table 1 Personal d etails
Client Client 2
Title Mrs Mr
Surname Smyth (née Smeg) Smyth
Given and preferred names Elsbeth John
Home address 30 Crune St
Caringbah NSW 2229
30 Crune St
Caringbah NSW 2229
Business address n.a. n.a.
Contact phone [phone] (02) 9544 7766
Age 32 36
Sex Male  Female  Male Female
Smoker Yes  No  Yes No
Expected retirement age Probably around the same time as
John retires
Probably around age 65
The first meeting
John and Elsbeth arrive at your office for the meeting as arranged. After making them comfortable,
you go through the key elements of your FSG and explain your role and capacity to assist them with
their insurance needs.
Collecting the data
You gather the following information about John and Elsbeth through a process of thorough and
polite questioning. From time to time, one or the other provides you with a relevant document to
confirm their financial situation. You confirm the details in the fact finder as you proceed.
John and Elsbeth’s current situation
John, age 36, is married to Elsbeth, who is 32. Elsbeth follows netball and is a keen weekend player
in a local competition. Elsbeth and John have one child, a boy named Harry, who was born 12
months ago.
John and Elsbeth purchased their home about three years ago which is now worth around $975,000.
They have a mortgage of $540,000. The mortgage is a variable interest loan with an interest rate of
4.5% p.a., which is linked to a bank offset account. (Note: An offset account is one that allows the
credit balance of the offset account to offset the interest owing on an outstanding loan or mortgage,
reducing the interest payable.) The mortgage has 22 years remaining and their minimum mortgage
repayment is $2,700 per month. Any excess income they have is paid into the offset account. The
current amount available in their offset account is $32,000.
John works full-time as a chemical engineer for an agricultural supplies company that sells
agricultural chemicals, seed and fertilisers and takes regular interstate business trips to rural and
regional Australia. He has worked full-time for his employer for 10 years and earns $165,000 p.a.
with additional superannuation guarantee (SG) contributions from his employer paid into the
employer’s default fund.

Elsbeth has recently returned to work on a part-time basis (3 days a week) following maternity leave.
She is a marketing manager for a local engineering company and has also been with the same firm
for 10 years. She earns $63,000 p.a. with additional SG contributions from her employer paid into
the employer’s default fund. Elsbeth advises during the meeting that she feels she would like to
change her current employment, and is considering starting up her own consulting business from
home. This would enable her to spend more time with their son.
They currently use a child care centre, as well as Elsbeth’s mother, to look after Harry when Elsbeth
is at work. The child care fees are $88 per day (not including the Child Care Rebate), which Elsbeth
utilises two days per week for 48 weeks per year. These expenses are not included in their day-to-
day living expenses. Elsbeth’s mother minds Harry for one day a week at no cost. Once Harry starts
school, Elsbeth and John hope to send him to the local independent school at a total cost of $65,000
for his whole school life.
Other than their cash in the bank, superannuation holdings and house contents, the only other
assets they have are their motor vehicles. Elsbeth drives a recent model Ford Focus, currently valued
at $11,000, and John drives a late model Holden HSV performance vehicle, currently valued at
$33,000. Both cars are fully paid off and are comprehensively insured. All motor vehicle expenses
(except insurance) are included in the clients’ living expenses.
Superannuation
John has $260,000 in his employer’s default superannuation fund, the ASSF Super Fund, and is
invested in a balanced portfolio. He joined the fund on 1 February 2004.
Elsbeth has $114,000 in her employer’s default superannuation fund, the CISF Super Fund and is
invested in a balanced portfolio. Elsbeth joined the fund on 19 January 2004. Neither Elsbeth nor
John makes any additional contributions to their superannuation funds.
Insurance
John’s default superannuation fund provides a death and total and permanent disability (TPD)
benefit which is currently equal to his annual income (excluding SG contributions). The premium for
this cover is $1.25 p.a. for each $1,000 of cover or part t hereof, and is deducted from his
superannuation contributions. The ASSF Super Fund will allow a member to increase their benefit to
twice the member’s annual salary at this premium rate. The fund will allow a further increase in
cover to a maximum of $750,000. However, the premium will increase to $1.50 per $1,000 for any
amount of cover that is over twice the member’s annual salary. John’s superannuation fund can
provide income protection cover with a 30 to 90-day waiting period, and a two-year to age 65
benefit period. He has not taken out this cover.
Elsbeth’s default superannuation fund also provides a death and TPD benefit and she currently has
cover of $126,000 for each of life and TPD. The premium for this level of cover is $143 p.a. deducted
from her superannuation contributions. The CISF Super Fund allows for members to further increase
their cover to a maximum of $2 million and on the following premium scale:
• ≤$500,000 — $1.19 p.a. per $1,000 of cover
• $500,001 to $1 million — $1.45 p.a. per $1,000 of cover
• $1 million to $2 million — $1.65 p.a. per $1,000 of cover.
Elsbeth and John have no other personal insurance cover (except health insurance as per below).
They have full comprehensive insurance on their vehicles with a total annual premium of $2,800 p.a.

Elsbeth and John also have combined home building and contents insurance cover of:
• $100,000 home contents
• $750,000 home building.
Their home was built under an earlier version of the local building code. Additionally, the home was
purchased in a much lower market than the current one and is estimated to cost much more than
the $675,000 purchase price to replace. The policy has a contents excess of $500 and a building
excess of $1,100. The policy also includes legal liability cover of up to $20 million. Elsbeth and John
pay $145 per month for this insurance.
The Smyths have adequate private health insurance cover; this is the family cover option and
includes hospital cover with a $500 excess. They pay a premium of $270 per month for this cover.
This premium includes the private health insurance rebate. The above vehicle, home and contents
and health insurance payments are not included in their general living expenses.
Other information
John and Elsbeth have a credit card with a limit of $15,000 that they use for all their general
expenses and entertainment. However, they never spend up to their limit and always repay within
the interest-free period. They estimate their average monthly living expenses are $6,900 per month.
John and Elsbeth used to go on regular annual holidays and spent over $10,000 per trip. However,
since the start of their mortgage and the birth of Harry they now plan to take a holiday every two
years spending about $5,000, in addition to their general living expenses.
John advises he is quite healthy and has accumulated 78 days sick leave. However, he advises that
he was diagnosed with asthma symptoms in the past for which he was prescribed medication. He
has not experienced a return of these symptoms during the past couple of years. Elsbeth took all her
accumulated annual and long service leave as part of her maternity leave.
Other expenses include a donation by Elsbeth to the National Breast Cancer Foundation of $50 per
month and John makes a tax-deductible donation to Plan B of $50 per month. They each make tax-
deductible ‘bucket’ donations of $50 p.a. to disaster relief funds, and accountants’ expenses come to
$150 p.a. each. These expenses are also in addition to their general living expenses.
Needs and objectives
During your conversation with John and Elsbeth, it becomes apparent that their main objective is to
protect their home and to provide for their son Harry.
Elsbeth commented that she is very concerned that they may not be able to maintain their lifestyle if
either of them died or suffered a prolonged illness. She would like to make sure that if anything were
to happen to them, Harry would be well taken care of.
At this time, they are not yet concerned with superannuation and retirement planning, believing that
it is still a long way off and that they will have time to address this part of their financial plan in the
future.
Elsbeth and John have a full and comprehensive estate plan that John insisted on when they
were married, and which was updated when they purchased their house and on the birth of Harry.
Also, Elsbeth’s mother has agreed to increase her care of Harry to three days per week if anything
were to happen to Elsb eth (i.e. death or total and permanent disablement).

Closing the interview
Prior to closing the interview, you review the information provided by Elsbeth and John to check
whether it is complete. You answer some additional questions they have about what happens next
and what your likely costs will be, and explain that with their agreement you will now prepare a
written financial plan, called a statement of advice (SOA), based on the information collected and
their stated objectives. The SOA will describe possible risk management strategies and insurances
they should consider, and the reasons behind your recommendations.
John and Elsbeth agree to proceed to the next stage of the financial planning process, and you make
an appointment to present the SOA in a fortnight.
Note: You are not required to complete a full and comprehensive SOA in this assignment.
Section 1 — The fact finder
The first step is to complete the fact finder for John and Elsbeth. Refer to section 2 of your Insurance
and Risk assignment.

Section 2— Analysing the data
The next step in the financial planning process is to analyse the collected data. You do this so that
you can fully understand your clients’ needs and therefore design a financial plan that addresses
their goals and objectives.
By analysing the data provided under the following headings, you can start preparing a financial
planning strategy that will meet your clients’ needs:
• Review the fact-finding stage
• Current position
• Debt management
• Risk/protection
• Savings
• Present and future taxation issues.
Note: There are a series of questions relating to section 3 in the assignment that you must answer.
Use your answers for section 3 to help you decide on your recommendations for John and Elsbeth.
Your answers to these questions are your opportunity to demonstrate your ability to analyse the
clients’ needs in preparation for developing a strategy that aligns with their requirements.
Section 3 — The strategy
Now that you have analysed the data, you are in a position to think about appropriate strategy
options and start drafting appropriate strategies for them. This should include levels of cover and
researching possible products that can support the implementation of those strategies. You will use
all of this information in your SOA for the couple.
Note: There are a series of questions relating to section 4 in the assignment that you must answer.
You will use your answers for section 4 to help you decide on your recommendations for John and
Elsbeth. Your answers to these questions are your opportunity to demonstrate your ability to
analyse your clients’ needs and develop a strategy that aligns with their requirements.

2 - Risk needs
Insurance needs — Life and TPD
Elsbeth ($) John ($)
C Clean-up fund Settle all outstanding accounts, including credit cards, bills and funeral costs
Estimated funeral/medical costs 43120 59680
Total 43120 59680
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 $5000 $5000
General living costs excluding child care and
mortgage payments
$10000
Remaining spouse’s net income $10000
Income shortfall if other spouse died 109276
Annual income shortfall until Harry leaves university
Total $134,276 $5000
M Mortgage fund The amount necessary to discharge any existing mortgages
Home loan $2220000 $2220000
Total $2220000 $2220000
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
Child care costs for Harry until school age (four
years)
Total
Education costs for Harry $32500 $32500
Total
Total $32500 $32500
R Retirement fund The lump sum necessary to provide adequate funding for retirement

9.50% employer SG contributions $188100 $399475
Savings forgone $229402.74 $166397.60
Total $417502.74 $565872.60
Less value of realisable assets
Superannuation $114000 $260000
Offset account $32000 $32000
Less existing life/TPD insurance cover $126,000 $165000
Recommended sum insured $419898.70 $580,000
Recommended sum insured (rounded to the nearest $10,000)
Assessor feedback:
Sum insured for John will not meet client needs and need
revising further keep in mind John require more life cover
than Elsbeth. Please revise. Life cover for Elsbeth is high and
likely not feasible, Please revise
$420,000 $580,000
Risk needs
Insurance needs — Trauma
Elsbeth ($) John ($)
Pay out personal debt (credit card) 15000 15000
Pay mortgage for 12 months $17520 $17520
Estimated medical and rehabilitation costs
(including cover out-of-pocket health costs)
Estimated modifications to home and vehicle $375000 $375000
Other debts
Other expenses
Less existing realisable assets
Recommended sum insured $500,000 $500,000
Recommended sum insured (rounded to the nearest
$10,000)
$500,000 $500,000
Assessor Feedback: Ok, however sums insured maybe considered high

Insurance needs — Income protection
Income protection Elsbeth ($) John ($)
Gross annual income $60000 $145000
Superannuation guarantee N/A N/A
Total insurable income $60000 $145000
Monthly income (i.e. total insurable income/12) $5000 $12083.33
Recommended monthly benefit (i.e. 75% of total monthly
insurable amount)
$3750 $9062.5
Benefit payment period 33 years (up to the age of
65)
30 years (up to the age of
66 years)
Waiting period to be served 60 days 60 days
Assessor Feedback:
Waiting & benefit periods remain unclear, what is
meant “33” for waiting period? Income protection
policies have defined waiting periods, and these
are what you should use. Benefit periods same.
Please revise

Section 2
Analyse the data provided by the couple by answering the following questions. Think carefully about
your responses and do not assume that you are in a position to provide answers to everything.
You may not have enough information; it may be outside of your licensee’s designated authority for
this case study (i.e. the matter needs to be referred to a specialist adviser) or it is not a goal or
objective of your clients. Where this might be the case, make sure you make a comment to that
effect where relevant.
Make sure you constantly refer to the data you have on John and Elsbeth so your responses
accurately reflect the information provided to you.
The questions Your response Assessor feedback
1) Do Elsbeth and John currently have
adequate life and TPD cover?
If ‘yes’, why/how?
If ‘no’, how much should they have, and
why that much?
No
On the basis of the information
which is provided by you, the
insurance coverage is not
appropriate for you guys and it is
recommended that you need
proper insurance coverage for the
same. You have been relying on
the coverage which is provided by
superannuation for meeting life
insurance coverage and TPD
insurance coverage. I would
suggest that you take a new
insurance policy which would
cover your health. The insurance
policy would be $ 420,000 for you
Elsbeth and $ 580,000 for you,
John. This sort of insurance policy
would not only be covering your
life coverage but also provide for
TPD coverage. The insurance
coverage would be covering for
health as well as any death or
total or permanent disability
situations.
Your life cover amount of $10
million is not consistent with
your “cimer”, further does it
cover there health? You need to
be clear and accurate for your
clients.
Please revise
2) Do Elsbeth and John require any other
insurance cover?
If ‘yes’, what type of cover? How much do
they need? How should it be provided?
If ‘no’, why?
Yes
As per the case which is provided,
the couple would be requiring
coverage on income protection
and health and TPD insurance.
The health insurance is already
being covered in the new total
and permanent disability life
How much cover for Income
Protection & how provided?
So as asked ,what covers do they
need, and as asked how much
and how provided?
Please revise

coverage which you will be
taking. The health coverage
would be $ 420,000 for you
Elsbeth and $ 580,000 for you
John and the same is considering
the information regarding
insurance requirements which
was provided by you. The
insurance of income protection
should be $ 60,000 for you
Elsbeth and 145,000 for you John,
considering your current
earnings. This would ensure that
you get appropriate income when
the benefit period commences.
3) If Elsbeth commences her own
business, would she require any
further insurance cover?
If ‘yes’, why and what would she require?
If ‘no’, why not?
No
I don’t think you would be
requiring any further covers as
the crucial coverages I have
already recommended to you
such as the health insurances,
TPD coverage and income
protection coverage so that your
needs are considered.
You may have misunderstood
here, you are being asked what
else may be required, give this
more thought and revise

Section 3 — The strategy Case study questions
Answer the following questions in the spaces provided. The questions are your opportunity to
demonstrate your ability to analyse a client’s needs and develop a strategy that aligns with their
requirements.
Section 3
Based on your analysis of the data, describe in general terms the strategy you think will best meet
Elsbeth and John’s needs, and why. Include what other specialist advice they will need to source so
they can have access to a comprehensive financial plan (up to 520 words).
Note: Students who need assistance determining the approximate premium costs of particular
recommendations should use the internet to research and use the calculations as a guide when
answering assignment questions.
You need to expand on the strategy, you must include all the types of insurance cover you are
recommending, indicating how they will be structured (inside vs outside super), the sum insured and
the relevant waiting & benefit periods where applicable. Resubmission required.
As per the information which is provided to us from you, John and Elsbeth, it is definite that you
would be requiring an appropriate insurance coverage in order to ensure that you are safeguarded
from future risks and uncertainties. As per our discussion in last meeting, you are worried regarding
any future mishaps which can affect your family as you have discussed the case of John’s colleague.
As you have pointed that your superannuation funds cover for health insurances for both and
therefore the same is not your requirement at present
In order to settle your concerns, I have made some research and I would be suggesting life insurance
which would be able to cover your needs and would be definitely securing your future. I have
researched and, in my opinion, Basic death cover which is provided by Host Plus Insurance and
Voluntary Death Cover which is provided by Host Plus Insurance can be an option and I personally
would suggest Basic death cover which covers vital aspects and requirements which you want. The
coverage which you need would be around $ 580,000 and this would be covering your needs
effectively. I would also be suggesting total or permanent disability coverage and I would be
suggesting that you take on TPD coverage which is provided by Hesta insurance as the same would
be very suitable for your needs. The compensation which is provided by this insurance coverage is
very much appropriate and it would effectively address your concerns regarding any future mishaps.
In addition to this, I would also like to suggest to you an income protection insurance which can
effectively conserve your income and ensure that there is always a steady flow of income and
protect your interests. The income protection insurance product which I would be suggesting would
provide for a coverage of $ 10,00,000. A product which I would be suggesting in case of an income
protection scheme is the product which is provided by rest insurance which would effectively
safeguard your earnings and provide a coverage up to $ 10,00,000. This insurance product would be
covering any income protection in case of temporary and permanent damage. This insurance will
take care of the fact that the income of the couple is safeguarded and therefore would receive a
fixed amount at the time of any kind of accidents and mishaps. There are various advantages to this
insurance product which I am suggesting such as you can even raise the coverage of your
superannuation funds and thereby increasing your payment amounts from $0.90 per 1000 to $1 per
$1000 so that the death coverage financially rises double their income. This would be further
supporting your future plans and even contribute to retirement planning which you are intending to
do in some future period.

I can also suggest some of my known accounting professionals and solicitors which can help you to
set up the financial requirements for the insurance products which I have suggested. I have devised
my entire strategy on the basis of the information which was provided by you and I am of the
opinion that this is the best approach which you can take for ensuring that future needs are meet
and also minimize any risks in future period.
Assessor feedback
Although there is improvement in your strategy, it requires further revision. You need to
provide a clear, concise and feasible strategy which uses appropriate cover and clearly
outlines the strategy for both clients Please revise