Acquired Financial Planning

Case Studies

Basics of Insurance Case Studies

Case study 1: Protecting your family

Max, 35, is an accountant earning $60,000 a year. He’s married to Sarah, 34, and they have two children aged four and two. Sarah currently stays at home caring for the children. Max and Sarah have a $140,000 mortgage, $4,000 owing on credit cards, and a car loan of $6,000. Max’s superannuation includes $50,000 of life insurance cover. Max is worried that if something happened to him, his family would be in financial difficulty.

After speaking to his financial adviser, Max decides to take out a $1 million life insurance policy and $200,000 trauma and disability insurance. When combined with the existing life insurance he has under super, if Max dies unexpectedly Sarah and the children will have $900,000 to live on after all debts are paid. Also, if Max was to suffer from one of the medical conditions specified in his trauma insurance policy or suffer a total and permanent disability, the lump sum he receives would help meet his medical treatment costs, hopefully without the need to dip into the family’s savings or go further into debt.

Max’s adviser also suggests he consider insurance for Sarah. Although she is not working, she makes a valuable contribution through running the household and looking after the children. His adviser points out that if Sarah died unexpectedly, Max would need extra money to arrange for the care of his home and children. As a result, Max decides to take out $500,000 life cover and $400,000 trauma cover for Sarah as well.

Arthur is 55 and earns $120,000 a year as a sales representative. He is married to Fiona and they have three children aged 22, 19 and 17. The children have all finished school and the youngest is about to start university. Arthur is planning to retire at 65 and has $200,000 life insurance through his super.

Arthur has built a comfortable life and has a number of assets, including a lovely home and a fishing boat. He has no debts and retirement is still almost 10 years away, however it is important to Arthur that he remain able to maintain his current lifestyle should he become unable to work due to sickness or disability. He certainly would not want to sell any of his hard-earned assets or eat into his retirement savings to support his day-to-day living costs should anything unexpected happen.

After speaking to his financial adviser, Arthur takes out an extra $200,000 life cover with $200,000 total and permanent disability cover to pay for medical treatment and any alterations necessary to his house if he became totally and permanently disabled. He also decides to take out income protection insurance, selecting a benefit of $7,500 a month (75% of his current income) up to age 65. With these additions to his insurance cover, Arthur feels comfortable that he could retain his current lifestyle without eating into his assets should he be unable to work due to sickness or disability.

Disclaimer

These case studies are for illustrative purposes only. They are not based on a particular person’s circumstances and are not personal advice. As this information has been prepared without considering your objectives, financial situation or needs, you should consider its appropriateness to your circumstances. You should seek assistance from your financial adviser before acting on this information. AIW Dealer Services ABN 59 153 322 420, AFSL 414256.

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