FP5eQCh16 - Problems with Guided Answers by Sharon Taylor...

Info icon This preview shows pages 1–3. Sign up to view the full content.

Financial Planning in Australia 5e Problems Ch16 Page 1 Problems with Guided Answers by Sharon Taylor © 2013 Reed International Books Australia Pty Limited trading as LexisNexis. Permission to download and make copies for classroom use is granted. Reproducing or distributing any material from this website for any other purpose requires written permission from the Publisher. Chapter 16: Insurance: Income Protection, Health and General 1 What things could you suggest to a client to lower the premium on his or her income protection policy? 1 Premium reduction across any form of insurance is generally associated with a reduction of cover. 2 Increase waiting periods. 3 Bundle policies with one insurer or bundle through superannuation. 4 Reduce their risk factors. 2 Michael Mackintosh is a quantity surveyor with his own business. He has an income of $200,000 and pays tax of $70,000. His personal (not business) expenses, including mortgage repayments, amount to $70,000. Michael is in good health, aged 55. In effecting an income protection policy, the insurer will limit the cover to 75% of income. a What benefit level would you suggest Michael take? 75% of current income, approximately $150,000. b What benefit period would you suggest be taken? This could be two years or to age 65. Given he is self-employed, I would recommend to age 65. However, if Michael were to have TPD cover, perhaps two years would be sufficient and then TPD could be accessed. c What waiting period would you suggest? No sick leave, hence it would depend on his savings and cash flow position. The longer the waiting period, the cheaper the premium. d Advise Michael of the advantages and disadvantages of level and stepped premiums . When considering to take out a life insurance, income protection or trauma insurance policy, you have the choice of how you would like to structure your insurance premiums either through stepped or level premiums .
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.