Monarch Institute DFP Module 4: Insurance Fundamentals Assessment

This assignment, completed by a student, covers the core concepts of insurance within the context of a Diploma of Financial Planning (DFP) Module 4 course. The assessment includes three activities: short answer questions on general and personal insurance, a case study involving risk assessment and insurance policy considerations for an airplane owner, and a simulation exercise focusing on trauma and total and permanent disability (TPD) insurance. The assignment delves into various insurance policies, claim scenarios, and the roles of actuaries and underwriters. It also explores risk management, insurance calculations, and the implications of under-insuring assets. The student's responses demonstrate an understanding of insurance types, policy features, and the application of insurance principles to real-world scenarios, showcasing their ability to analyze and evaluate insurance needs within different contexts. The assignment adheres to the Monarch Institute's assessment guidelines, emphasizing the application of knowledge and skills relevant to financial planning.

DFP Module 4 Assignment 1505
Diploma of Financial Planning
Module 4 Assignment
Submission Instructions:
Key steps that must be followed:
1. Please complete the Declaration of Authenticity at the bottom of this page.
2. Once you have completed all parts of the assessment and saved it (eg. to your
desktop computer), login to the Monarch Learning Management System (LMS)
to submit your assessment.
3. In the LMS, click on the file ”Submit DFP Module 4 Assignment” in the Module
4 section of your course and upload your assessment file/s by following the
prompts.
4. Please be sure to click “Continue” after clicking “submit”.This ensures your
assessor receives notification – very important!
Declaration of Understanding and Authenticity *
I have read and understood the assessment instructions provided to me in the Learning Management System.
I certify that the attached material is my original work. No other person’s work hasbeen used without due
acknowledgement. I understandthat the work submitted may be reproduced and/or communicated for the
purpose
of detecting plagiarism.
Student Name*: Date:
* I understand that by typing my name or inserting a digital signature into this box that I agree and am bound by
the above student declaration.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Important assessment information
Aims of this assessment
This assessment covers the fundamentals of insurance. General insurance concepts are
addressed, including the role of actuaries and underwriters. Personal insurance contracts are
explored including Term Life policies, Total and Permanent Disablement (TPD) policies,
Critical Illness (Trauma) policies and Income Protection insurance policies. The requirements
for insurance to be offered via a Product Disclosure Statement (PDS) is covered with specific
emphasis on researching specific definitions that dictate what is included, and what is not
included within a standard contract. Insurance “buy-back” features within Term Life and
Trauma insurance policies are a focus. The tax benefits and implications associated with
income protection policy premiums and benefits are also addressed. Statement of Advice
(SOA) documents focussing on insurance advice are critiqued, with a focus on determining
whether a reasonable basis for advice has been met. Lump sum calculation for Term Life and
TPD insurance needs are calculated using the ‘Income Capitalisation’, ‘Age-to-retirement’,
and ‘goals’ approaches. Risk and best practice involving replacing insurance policies is
explored, as is the formal insurance review process.
Marking and feedback
This assignment contains 7 assessment activities each containing specific instructions.
This particular assessment forms part of your overall assessment for the following units of
competency:
 FNSASICX503
 FNSASICZ503
 FNSASICM503
 FNSFPL504
Grading for this assessment will be deemed “competent” or “not-yet-competent” in line with
specified educational standards under the Australian Qualifications Framework.
What does “competent” mean?
These answers contain relevant and accurate information in response to the question/s with
limited serious errors in fact or application. If incorrect information is contained in an answer,
it must be fundamentally outweighed by the accurate information provided. This will be
assessed against a marking guide provided to assessors for their determination.
What does “not-yet-competent” mean?
This occurs when an assessment does not meet the marking guide standards provided to
assessors. These answers either do not address the question specifically, or are wrong from a

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
legislative perspective, or are incorrectly applied. Answers that omit to provide a response to
any significant issue (where multiple issues must be addressed in a question) may also be
deemed not-yet-competent. Answers that have faulty reasoning, a poor standard of
expression or include plagiarism may also be deemed not-yet-competent. Please note,
additional information regarding Monarch’s plagiarism policy is contained in the Student
Information Guide which can be found here: http://www.monarch.edu.au/student-info/
What happens if you are deemed not-yet-competent?
In the event you do not achieve competency by your assessor on this assessment, you will be
given one more opportunity to re-submit the assessment after consultation with your
Trainer/ Assessor. You will know your assessment is deemed ‘not-yet-competent’ if your
grade book in the Monarch LMS says “NYC” after you have received an email from your
assessor advising your assessment has been graded.
Important: It is your responsibility to ensure your assessment resubmission addresses all
areas deemed unsatisfactory by your assessor. Please note, if you are still unsuccessful in
meeting competency after resubmitting your assessment, you will be required to repeat
those units.
In the event that you have concerns about the assessment decision then you can refer to our
Complaints & Appeals process also contained within the Student Information Guide.
Expectations from your assessor when answering different types of assessment questions
Knowledge based questions:
A knowledge based question requires you to clearly identify and cover the key subject matter
areas raised in the question in full as part of the response.
Skill based questions:
Where you are asked to write as though you are speaking to a client, your answers must
show your ability to:
 understand your client’s concerns/perspective/views
 show empathy
 display a professional response
 explain ideas clearly and simply so your client can understand the issues
Good luck
Finally, good luck with your learning and assessments and remember your trainers are here
to assist you 

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Assessment Activity 1
Short Answer
General Insurance & Personal Insurance
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 8 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1 hour

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Required
For each of the following situations, describe the insurance policy(s) you believe would entitle a claim to
be made. In doing so, please explain why you think a claim could be made.
a) Nina runs a coffee shop and slips on a step at home one day and suffers a back injury. As a result
she is unable to work for 3 months and incurs significant medical costs.
In this scenario, Nina is eligible for certain insurances as she is a working lady and therefore the
insurance policies that are suitable for the lady are Private Health Insurance, Income Protection
Insurance and Trauma Insurance. Claim would be made as Nina incurs a significant amount of
medical cost.
b) Steven, an employee, suffers from stress and is required to rest at home for 2 weeks.
In this scenario, Steve may not require any insurance policies as the person can rely on sick leave and
leave of absence.
c) Alfred is knocked down by a fork lift at work and is hospitalised for 3 weeks.
With respect to Alfred, he may not require any insurance policies as he may make use of his sick
leaves and the leave of absences and he would be even covered up by the worker’s compensation
insurance. The availability of this insurance permits him not to take any further insurance policies.
d) Linda, an employee is diagnosed with cancer incurs a significant amount of medical costs.
With respect to Linda, she can apply for certain insurance policies like the trauma insurance, life
insurance and income protection insurance. Claims can be made by Linda as she is suffering from
cancer and has a significant amount of medical costs that she has to bear.
e) She dies within 6 months of the diagnoses.
As she dies within the six months of the diagnosis, her family would receive the compensation
amount from the life insurance policy and would receive a large amount as her income protection
policy.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
f) Peter was a self-employed plumber. Due to an accident at a construction site one day, he suffers
an accident and is unable to work again as a plumber or tradesperson generally.
In this case study as Peter will not be able to work again as a plumber and even as a tradesperson, the
insurance policies that he requires are the income protection insurance and the total and permanent
disability insurance. He can make claims from these policies as his permanent income has ceased due
to the accident and will not be able to work anymore. This suggests that there has to be a total and
permanent disability and so can claim for the same as well.
g) A restaurant that is shut down for 6 months because of a cyclone.
In this case study as the restaurant is shut down for six months for a cyclone the owner may
purchase insurance policies like the income protection insurance and Business Interruption
Insurance. The restaurant would get claims from the Business Interruption Insurance as it is seen
that the cyclone has not been named by the national bodies.
h) A tenant whose flat burns down.
In case of a tenant whose flat has been burnt down, the tenant can purchase a life insurance policy
and a general insurance because with the help of the general insurance, the tenant can financially
compensate with the household items that has been lost.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Assessment Activity 2
Case Study
General Insurance
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 3 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 30 minutes

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Background
Albert recently acquired a new plane. He plans to use it mainly for personal purposes, but will also use it
for charter trips in order to raise money to help him make payments on the loan and for maintenance
costs.
Required:
1. Advise Albert on the risks he faces in owning the plane, whether the risks are speculative or pure,
and how best he might handle each of those risks.
The owning of the plane for business and personal use would expose Albert to pure risks as the end
result for the exposure can be either profit or loss. The pure risks that is faced by Albert are:
 Injury or death of himself, which is known as the personal risk
 Injury or death to the passengers denoted as the public liability
 Loss or damage of the plane even known as property risk
 Loss of income from the charter business due to property and personal risk, which can even
be denoted as the commercial or consequential risk.
The best way Albert can handle himself would be undertaking various insurance policies that have
been listed below:
 Purchasing insurance policies like the life insurance, trauma insurance and the income
protection insurance.
 Albert can even purchase property insurance and avoid himself from the charter business.
 A public liability insurance can even be used or Albert can avoid the charter business
2. To save some money, Albert decides to insure the plane for less than what it is worth. How is an
insurance company likely to deal with this position in the event of a claim?
In order to deal with this condition, the insurance company requires to make use of the formula:
(Amount of insurance carried/amount of insurance required)* Amount of loss.
This is known as Coinsurance. The Coinsurance amount that is insured can be lower than the full value
due to any market fluctuations but has to be more than the amount that is specified or else
coinsurance would apply.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
3. Explain the difference between an actuary and an underwriter.
Underwriter is known as the individual within the firm who will be helpful in assessing if the firm
should undertaken the risk based on the personal details of the person or the company who has
applied for the insurance.
Actuary on the other hand is accountable for providing the general benchmark price to the overall
insurance plan and disclosing what the price of an insurance product should be.
In an insurance company, the actuaries are extrinsic and provide a guideline to the price of an
insurance product and then the underwriters of the form are free to look at the things at a case by
case basis and examine if all the people who have applied for the insurance should be given the same
amount of insurance or not.
Assessment Activity 3
Simulation Exercise
Insurance – Trauma, TPD
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 10 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Background
Craig and Beverley come to see you for the first appointment meeting. Craig is 41 and Beverley is 39.
They are married with three children aged 9, 8 and 5. Whilst Craig is the main breadwinner, Beverley
has just returned to work part-time. As part of your first interview, you are trying to determine your
clients’ insurance needs.
Required:
Your task – Skills and Knowledge:
1. How could you respond to Craig who says “Beverley does not need any life insurance because I
already have life insurance and income protection insurance.”?
This question can be answered in an effective manner as it is seen that the couple are different as an
individual and have their own life and health. Beverly is even working as a part-time currently and therefore
has to be go out for work. This leads to a risk in her life as well. Therefore, it is essential to purchase a life
insurance and an income protection policy for Beverly as well because in case of death Beverly, Craig can
receive a financial compensation as well and if Beverly loses her job, the income protection insurance
would provide financial assistance as well.
2. List 4 reasons why your clients might be reluctant to take on more life insurance?
The four factors why the clients are reluctant to purchase another life insurance are given below:
1. The price of a life insurance product is very high and therefore, the client is satisfied with one
life insurance only.
2. The other factor that has been discovered that Craig (41) and Beverly (39) are quite young
and are even healthy and therefore feel that life insurance policies would be a poor
investment for them. They are planning to purchase once they are growing old.
3. The case study has provided that the client has three children who are very young and
therefore the client needs to accumulate money on order to meet the future expenses of
their children regarding their studies and other expenses. The expenses would increase with
the advent of time and therefore the client is not in the intention of purchasing another life
insurance product and locking a significant amount of money on it.
4. The clients feel unpleasant when they hear about death and therefore they are not in the
opinion to purchase the anymore life insurance product.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
3. Explain to Craig and Beverley some of the characteristics of trauma insurance.
Trauma Insurance is even known as recovery insurance and critical illness insurance and is helpful
in lower the pressure off so that an individual can spend their time in concentrating on their health
recovery and not thinking about their finance. This insurance plan has been found to be an
appropriate financial back up plan for their lifestyle and provides them the confidence to go ahead
with their plan and have a secured future life. Trauma Insurance is even helpful for any individual
for recovering from their illness and even maintains their financial position. The various
characteristics of this insurance are as follows:
 This insurance pays for the cost of the treatment and the care of the individuals and
secures them from paying for any health cost from their own pocket.
 Pays for the recuperation aids
 Replace any lost income due to a lowering capability to earn
 Funds for a change in the lifestyle.
It has been observed that recovering physically is possible from a critical illness but the impact financially
remains for a long time. With the help of the trauma insurance one can access the best medical treatment
without worrying a lot about the cost of the treatment as the amount is paid by the insurance. Therefore,
trauma insurance is important if one wants to recover from their illness.
.
4. What definition/s would Craig need to satisfy to receive a TPD payout whilst working as an
electrician under the ‘any occupation’ definition? Refer to page 104-106 in the Comminsure PDS
included in Appendix 1 of Module 4.
The definitions Craig would require to satisfy to receive a TPD as he works as an electrician are as
follows:
Being an electrician, Craig needs to have accidental death cover and death cover benefit so that The
amount of the cover is that shown in the policy schedule as increased or decreased under the policy.
This amount is the Accidental Death Cover that is paid.
The other definition that is required is the child cover benefit in which his children would be covered
as well and would be provided financial assistance in case of any mishaps or accidents. The cover
would end when the children reach at the age of 18 years.
Craig can even be provided a flexi-linked policy life insured where he life insured to whom primary
Life Care applies under the primary policy and flexi-linked rider cover applies

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
under the flexi-linked policy. The Life Care for this life insured is shown as ‘flexi-linked’ in the policy
schedule.
For flexi-linking to apply, the primary Life Care and flexi-linked rider cover must apply to the same
life insured.
Flexi-linked TPD cover can even be explained where the TPD Cover applying to the flexi-linked life
insured under the flexi-linked policy, being cover to which flexi-linking applies. Flexi-linked TPD Cover
includes a benefit payable for partial and permanent disability, the TPD Cover
Severe Hardship Booster benefit and the TPD Cover Loyalty Bonus benefit under the flexi-linked
policy. Craig can even name a nominee where after his death the nominee can claim for the
compensation amount from the firm and thereby maintaining the financial position of the family.
5. As a consequence of your interview, Craig and Beverley are considering taking out some
insurance for Beverley. Prepare a question you could ask them to determine whether they are
ready to proceed to the next step in the process of acquiring some/more life insurance. For
example, “…can you see why that could be an issue for you?”
The question that is asked to the client is as follows:
Have you understood the qualities of an insurance product and have you understood that being an
electrician there are various risks and so are you ready to purchase an insurance product?
6. How would you explain to any client why only having term life insurance may be insufficient?
Maintaining term life insurance may be insufficient as it is seen that term life insurance only looks after the
financial compensation that may occur due to the death. But, as Craig is an electrician he may face risks
that may lead to total and permanent disablement and thereby may lose the ability to earn income.
Therefore, it is essential so maintain income protection insurance as well as trauma or total and permanent
disablement insurance so that in case of such risks the client recover from such situations and can maintain
their current lifestyle.
7. How often do you think it would be appropriate to review Craig and Beverley’s personal
insurance? Explain why.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
It is essential to review the personal insurance of Craig and Beverly from time to time as it is seen that
Beverly works part time and Craig works as an electrician. Therefore, there may be situations that may
change the lifestyle of the couple. Therefore, analysing the personal insurance of the client is important so
that in case of any mishaps their insurance products can be modified accordingly and can add in new
features in their insurance policies. The main factors reviewing the insurances are as follows:
Changes in the lifestyle
Changes in the income
Health changes
Situation of the family has changed
Whether any loan has been taken
8. In your annual review many years later (after Craig and Beverley have become happy clients of
yours), they inform you they are borrowing $1.2 million to purchase a share in a business. Explain
why an insurance review is necessary at this time?
Insurance review is necessary before borrowing $1.2 million as it is seen that the financial institutions can
look at the level of premium that the couple pay and the amount of sum that is insured by Craig. In order to
take a borrowing, it is essential to provide a security and therefore it is seen that if required the sum
insured amount can be useful as a security for the amount that will be borrowed.
9. Provide a list of 4 hypothetical circumstances which would justify a review of insurance cover for
Craig and Beverley?
The four hypothetical circumstances for the justification of the review of the insurance cover are as follows:
1. Change in income for the couple
2. Change in lifestyle of the couple
3. If the couple have decided to take a debt or loan
4. If the insurance product of the couple has not been reviewed for a long time.
10. Three years after first sitting down with Craig and Beverley (who are now your clients), Craig
suffers a stroke at home. Luckily you advised Craig three years ago about the benefits of critical
illness (trauma insurance) so he chose to take out a linked (bundled) policy for term life insurance
and TPD of $1,250,000 for each cover and an additional stand-alone critical illness (trauma) policy

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
of $380,000 where claims can be paid out after 14 days of suffering a trauma. Five days after his
stroke, Beverley calls you to tell you Craig is not responding to treatment and it is “touch and go”.
She asks you how much cover they have.
i. If Craig died 6 days after his stroke, how much insurance would Beverley and the
children receive under the policies?
They would not receive any amount now but would receive the full amount only after 14 days that
was sum insured along with the trauma insurance coverage.
ii. If Craig died 43 days after his stroke, how much insurance would Beverley and the
children receive under the policies?
Beverly and her children would receive the full amount as it is seen that their
premium is fully paid and it was said that they would be given full compensation
only after 14 days after the incident.
iii. If Craig survived the stroke, but was now permanently wheel chair bound and
unable to work, what insurance would he be entitled to, and how much?
In this case Craig will be eligible for the trauma insurance coverage and would be
receiving the amount either in full or will be given according to the medical costs
that have been incurred.
iv. If Craig survived the stroke, but was now wheel chair bound and unable to work,
explain how a buy back insurance policy would work with respect to his Term Life
and TPD policy (assuming the Term Life and TPD was linked under the one
policy)?
The buyback policy would be possible by contacting with the agent and then understanding the
terms and payment of the insurance company and then filling up the adequate forms so that
adequate steps can be taken to buyback the policy.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Assessment Activity 4
Case Study & Written Questions
Insurance – Income Protection
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 5 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1 hour

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Background
Mary and John are in their mid-thirties. They have 2 children aged 7 years and 10 years. They have
a mortgage of $400,000. John works as a welder in a large automotive firm earning $54,000 per
annum. Mary does not work in paid employment. Both Mary and John have term life insurance
policies for $600,000 each.
Required:
Your task – Skills and Knowledge:
1. Would income protection insurance be appropriate for John to consider? Why?
Income protection insurance is an insurance product that helps in managing the expenses in
case the insurer is unable to work because of sickness or injury. The income protection
insurance is also known as salary continuance insurance. This insurance helps in replacing
the income lost so it important for an individual to consider this who is entirely relied on
that income. The income protection insurance is suited for individual who are self-
employed, small business owners and professionals relying heavily on the ability to work. In
this case, Mary and John are in their mid-thirties. The John is the only earning member and
they have minor children aged 7 and 10. Therefore, on analysing their situation it can be
said that it would be appropriate for John to have income protection insurance.
2. Would income protection insurance be appropriate for Mary to consider? Why?
The Income protection Insurance is not appropriate for Mary. The nature of income
protection insurance is to provide for the lost income. In this case, Mary is not
employed so income protection insurance is not applicable.
3. If John had taken your advice and taken out income protection insurance, how much would he
receive each month (after his waiting period had been met) if he was unable to work due to
depression?
The income protection policy generally offers 75% of the gross wages. The maximum period the insurance is
offered is for 2 years or till the age of sixty. In this case, if John is unable to work he will receive an amount
of (54000X75%)= 40500.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
4. What types of insurance should Mary consider?
In case of sickness or medical treatment, Mary will be required to pay the bills. Therefore, it is suggested
that it will be appropriate for Mary to take a private health insurance cover.
5. If cash flow is a concern for John and Mary, what strategies could you suggest to enable them to
continue with their term life insurance but add income protection as well for John?
The additional insurance of income protection by John will further increase the cash out flow.
Therefore, it is suggested that John should take a life insurance that provides in addition an income
protection cover. In that way, cost could be reduced and cash flow could be maintained.
Assessment Activity 5
Simulation Exercise
Statement Of Advice - Analysis
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 6 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Simulation Exercise
Refer to Appendix4 of Module 1 for an example of a Statement of Advice (SOA). It is not a comprehensive
SOA. For example, it does not include modelling as to whether retirement aims will in fact be achieved. It
is quite basic, yet it is still approximately 50 pages in length.
Many industry regulators have lamented that there is a lot of jargon and ‘legalese’ in SOA’s. Consequently
many ‘end clients’ of financial advisers find these SOAs difficult and cumbersome to digest – even though
they are paying for them!
The SOA you are to read in Appendix 4 is written by a fictional adviser, and includes fictional clients and
investment products. Nevertheless, it is based in many parts on norms within the financial planning
industry, enforced by dealer groups that are concerned about being litigated against by disgruntled
clients.
Required:
Questions about the insurance recommendations
1. After reading the SOA by Savilles Financial Advisers, has the financial adviser in your opinion
sufficiently explained how he arrived at $500,000 of life cover and TPD required to satisfy his
obligations under the best interests duty?
In the statement of Advice, it is recommended under personal insurance that Gerald & Michelle should
each take a total and permanent disability pension cover in super for $50000. The reason that have been
given for recommending the insurance is that it is necessary to reduce the financial impact on the family in
case there is any accident or disability. In the best interest of the client, it is important to determine the
advantages and disadvantages of the product offered. The benefit of the current recommendation along
with the loss of benefit is explained in the statement of advice.
2. The SOA recommendations for income protection cover 75% of Gerald’s income and Michelle’s
income. The waiting period is 1 month and the benefit period is paid to age 65. Do you think the
SOA adequately explains what the waiting period is, and how the benefit period works? What
would you do to improve the advice on these two points?
The statement of advice does not provide adequate explanation of the waiting period and the benefit
period. The waiting period for the income protection insurance is the time that an individual is

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
required to wait from the time the individual is unable to work until the benefit is received. The
waiting period can range from 14 days to 720 days depending on the type of policy. In the SOA only
the waiting period of 30 days that are provided by the XYZ insurance is indicate. The statement should
provide the meaning and the implication of the waiting period in a more elaborative manner. The
statement of advice indicates that the insurance offers benefit period up to age of 65 years. However,
the meaning and implication of the benefit period to the insured is not explained properly in the
advice statement. The benefit period is the time for receiving benefit from individual claim. The
benefit period could be number of years or specific age like 60 or 65 years. The shorter the benefit
period lower is the premium rate and vice versa. This should be properly explained in the statement of
advice for the benefit of the insured.
3. If Gerald and Michelle did have dependants (…which they don’t), how do you think that should
have impacted Saville’s assessment of their required life and TPD cover (if at all)? Explain.
The main aim of the insurance is to provide financial protection and assistance to the insured in times of
unforeseen circumstances. The insurance cover needed varies according to the stage of life. In case the
insured has, dependents then they will be vulnerable to the change in the financial situation. In such
situation, the need of the TDP and insurance cover will increase. Therefore, it can be said that if there was
dependent then the assessment would have changed.
4. It mentions in the SOA that they shouldn’t cancel their existing policies until the recommended
insurance with XYZ insurance is put in place. Why is this so important?
The new policy requires some tine for approval. The insured will receive the cover if the existing policy
is approved hence the old policy should not be cancelled because then the individual will not have any
insurance cover for a particular period.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
5. It mentions under the section ‘Costs and Risk of Replacing an Insurance Policy’ that the clients will
temporarily not be paid out for suicide for a period of 13 months. In your opinion, what is the
insurer’s intention in regard to that clause?
The insurer will not pay for any claim arising from suicide of an individual. The main aim of this clause is to
reduce the tendency of providing financial support to the family from insurance by ending life.
6. Compare this SOA to the sample SOA in Appendix 8 in Module 1, issued by ASIC. ASIC’s template
show’s how long an SOA can be in theory (….ie. much shorter), whilst remaining compliant. Which
SOA in your opinion do you think is easier to read and digest, and why? As a client which would
you prefer?
The SOA provided in Appendix 8 is easier to read and digest. As a client SOA of appendix 8 will be
selected as it is shorter and price.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Assessment Activity 6
Case Study
Statement of Advice – Insurance Elements
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer both questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 4 hours

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
The need to articulate your advice clearly, and comprehensively cover all the key issues for a client via a
Statement of Advice (SOA) is a critical part of the advice process.
This next assessment requires you to prepare different elements of an advice document (i.e. parts of an
SOA) for a fictitious couple.
IMPORTANT: This assessment has prescribed minimum word lengths that must be adhered to. Grammar,
punctuation and accuracy of information delivered will form part of the assessment criteria in the context
of determining competence for this assessment. The use of bullet points is allowable sparingly.
Background Information
 Laura and John live in a long-term de facto relationship and are 33 and 36 respectively.
 Laura is a chemical engineer and works full-time and John is a freelance journalist.
 Laura is 4 months pregnant with their first child. Laura intends to take at least 2 years off work in
a home-maker role not earning income to care for her child before negotiating a re-entry into the
workforce with her employer.
 They have a balanced risk profile from an investment standpoint.
 Laura earns a gross salary of $85,000 and John is expected to earn a gross income of $53,000.
Note: John’s salary has varied over the previous three years as follows ($66,000 - 3 years ago,
$82,000 - 2 years ago, $51,000 1 year ago).
 Laura and John rent their house and pay $640 per calendar week on rent.
 John inherited a portfolio of shares from his grandmother valued at $320,000. He chose to set up
a margin lending portfolio 2 years ago. His current margin loan is valued at $190,000 and his
current share portfolio is valued at $529,000.
 Laura has a personal loan on a car valued at $22,000
 John and Laura have combined credit card debt of $13,000
 Laura has a superannuation balance of $171,000 which is invested in a balanced fund. Note, Laura
has Life Insurance and TPD Insurance (Any Occupation definition) of $200,000 heldwithin
superannuation.
 John has a superannuation balance of $35,000 which is invested in a balanced fund.
 John has existing insurance cover outside of superannuation of:
 Greatcover Term Life insurance $350,000 (Stand Alone)
 Laura has existing insurance cover outside of superannuation of:
 AAA Term Life Insurance $100,000 (Stand Alone)
 Easycover Term Life Insurance $210,000
 EasycoverTPD (Own Occupation definition) Insurance $210,000 (note: Bundled
with Easycover Term Life Insurance)
Required:

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Laura and John come to you seeking scaled advice about their insurance needs in light of their changing
circumstances (i.e. their forthcoming baby).
You are required to complete elements of an SOA for Laura and John covering your insurance
recommendations. Please note, you are NOT required to research actual insurance companies for this
project. Your task will involve:
 Summarising the client’s situation
 Providing scaled advice covering the amounts of insurance required
 Articulating the basis for your recommendations.
Assessment - Part 1
(Minimum word length - 100 words).
You are to document Laura and John’s “Current Situation” as part of the SOA documentation. This should
be a succinct summary, and no more than three paragraphs based on the above information (not in bullet
points).
The Laura and John are in the long-term relationship. Then current age of Laura is aged 33 and she is
engaged as chemical engineer in a full time basis. She currently earns a gross salary of $85000. One
the other hand John is aged 36 and is engaged as a freelance journalist. It is expected that he would
earn a gross income of $53000 from freelance journalism. John being a freelancer it has been seen
that his salary has varied widely during the year. Laura is currently pregnant so she is planning to
take a 2 year off before reentering the job.
On discussing, the investment related with both of them it could be said that they have a
balanced risk profile. The John has portfolio of shares that he has inherited from his grandmother.
They currently live in rented house. On analyzing their liability, it has been seen that Laura has a car
loan. John and Laura combined have credit card debt of $13000.
The Laura has superannuation balance that is invested in the balanced funds. She has life insurance
and TDP insurance cover that is held within the superannuation. Laura has many other insurance
outside the super fund that includes TDP insurance. John has a superannuation fund that is invested
and has life insurance outside superannuation.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Assessment – Part 2
(Minimum word length: 600 Words)
You are to document your “Recommendations” as part of the SOA documentation. This must be uploaded
as a separate document into the Monarch Student Management System (LMS). Your recommendations
should be written in paragraph form (note: bullet points if used should be used sparingly). Use the
following headings (below) and remember all written recommendations should be in your own words;
 Our insurance recommendations
Refer to points 1 – 5 below when making your recommendations. You should address each of
these issues in your answer.
 Insurance types explained
In this area you are required to explain each insurance type ‘generally’.
That is, explain what each type of insurance provides and some general information about the
type of cover. In a SOA this area is general information which is not specific to a client. This
information could be used across the board for any client with an insurance recommendation
 The basis for our recommendations
Refer to point 6 below when you provide a basis for your recommendations.
Important information for this assessment:
Note – when using the income capitalisation approach, please note there is NO one correct
answer. Rather, there are many possible correct answers. Questions 1 and 2 (below)require you
to comment on the difficulties involved in trying to determine how much insurance is appropriate.
A good answer will identify the main issues to consider as well as indicating any challenges (or
opinions) you have when attempting to determine the appropriate amount of insurance.
1. Use the “Income capitalisation approach” to determine the recommended sums insured for Life
and TPD Insurance. You can use a discount rate for a balanced investor of 4%. Show your
workings and any assumptions you make. Combine all assets between Laura and John for this
purpose. Discuss the difficulty with Laura’s changing work circumstances. In determining how
much insurance they require take note of their existing insurance cover.
2. Explain any issues that arise when using the “Income capitalisation approach” to determine the
required Life and TPD Insurance.
3. Ensure you provide advice across Life, TPD, Trauma and Income Protection. Explain if they are (or
are not) applicable to your clients. For the purposes of a recommended Trauma insurance, please
recommend a sum of $200,000 each to provide for their estimated future medical expenses.
4. You must address the issue of Laura’s income status changing with the impending birth of their
first child. Explain in the context of the lump sum amount you determine they both require for
Life Insurance and TPD purposes, what TPD definitions would apply both now and after becoming
a home-maker, Income Protection insurance and anything else deemed relevant. Include any
assumptions you make, and provide a basis for such assumptions used.

DFP Module 4 Assignment 1601
Units: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
5. Given cash flow may well become a concern for the couple after moving to one income (certainly
in the short term) after Laura gives birth, provide recommendations that reflect a solution to that
genuine concern.
6. Do not assume the sample SOA provided in the Module 1 appendix provides a sufficient ‘basis’ for
the recommendations provided. Use the information in Module 4 course materials to clearly link
the key issues and recommendations back to Laura and John’s specific scenario as part of your
recommendations to demonstrate a sufficient basis.

DFP Module 4 Assignment 1601
Units covered: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Assessment Activity 7
Calculation Exercise
Insurance Requirements
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer both questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this
assessment
 Estimated time for completion of this assessment activity: 2 hours

DFP Module 4 Assignment 1601
Units covered: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
Question 1
Refer to the information provided to you in the previous activity - (Activity 6) about Laura and John.
Assume now that Laura and John did not rent, rather they owned a house worth $980,000 and had
an associated mortgage of $335,000. Assume they have a combined gross income of $90,000 and
want to retire at age 60
Re-calculate John and Laura’s Life Insurance and TPD lump-sum requirements using;
a) The Income capitalisation approach
The insurance need can be calculated using the capitalisation of income approach. It is a simple
method and the formula is:
Need=Annual Income/ real Rate Of Return
Insurance need= 90000/4%
= $2250000.
Non-investment related debt= $335000+ 13000 = $348000.
Net Investible funds= 339000+ 171000+35000 = $545000.
Lump sum requirement = 2250000+348000-545000 = $2053000
b) Age to retirement lump sum approach
Laura= (85000X 27)X0.66= 1514700
John= (53000X24)X0.66= 839520

DFP Module 4 Assignment 1601
Units covered: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
c) What is the main advantage and disadvantage of using the ‘goals’ approach compared to the
alternative ‘age to retirement lump sum’ and ‘income capitalisation’ approaches when
determining a client’s required Life and TPD insurance?
The benefit of goal approach as compared to other two approach are:
 It is a more personalised approach than other two;
 In this approach the insurance could be tailor made to the personal need of the client;
 In this approach the relevance of input can be easily understood;
Question 2
(Minimum word length: 200 Words)
If your client doesn’t have dependants, explain which insurance out of Life and TPD Insurance is still
very important and why, and which insurance out of Life and TPD Insurance is less important and
why? In your answer, explain why taking out insurance that has lesser importance, might still be
worthwhile for future reasons (e.g. changes in personal circumstances) in the context of health and
guaranteed renewability.
The life and TDP insurance is important. If the client does not have the dependent then also the
income protection insurance is very important as it saves the income of the household. On the
other hand, in that case, trauma insurance will not be required, as it would be covered by the
health insurance. The importance of taking out insurance are:
 To protect the loved ones and family from certain contingencies;
 It helps to create inheritance. The insured can pass the benefit of a amount insured to
the beneficiary.
 It helps to create financial security;
 It helps in bringing peace of mind.

DFP Module 4 Assignment 1601
Units covered: FNSASICX503, FNSASICZ503, FNSASICM503, FNSFPL504
The insurance that currently appears to be insignificant can become advantageous at a later stage
when the circumstances changes and there is a need of insurance cover. This can happen that for
example the current health condition can be fine so the individual can think additional health
insurance cover is unnecessary. The health insurance is also available with the government so it
can appear that private health insurance is not required. However, there can be situation when
the medical condition declines and an individual is required to have premium health treatment. In
that case the private health insurance cover can prove to be helpful. It is therefore necessary that
insurance cover should be taken however, lesser importance it might be.