AYB250 - PERSONAL FINANCIAL PLANNING Tutorial Solutions Topic 6 - Risk Management and Insurance 1. The Bellamys, Ben and Laura, ages 38 and 35 respectively, have three children aged 8, 10 and 13. Ben is a manager at the local Safeway supermarket and Laura runs a secretarial service from home. Laura's business has been growing quite steadily and currently produces an annual income of $30,000. The Bellamys own their house, which is valued at $300,000. Their mortgage is $200,000. They have two cars, a current model Commodore and a 7-year-old Toyota. Identify and discuss the various risks to which the Bellamys are exposed. The risks Ben and Laura face can be summarised as follows: . The children are young. In the event of the parents' death, they need to be provided for until they reach an age when they can provide for themselves. In deciding this period, Ben and Laura would need to regard their aspirations for them. For example, if they sought a university education, the period of dependency would need to be long enough to include that. . Ben or Laura incurring a disability. This would result in reduced income and increased medical and carer costs, and possibly outlays to make improvements to the home, depending on the disability. Ben may have some sick leave but beyond that, a government disability pension would be all that is available. Laura may not have a provision for sick leave given it is her own business. . One of the children incurring a disability. This could result in reduced income if one of the parents needed to be a full time carer. There could be increased medical costs and changes to the home. . Loss or damage to the house and its contents. · Loss or damage to the cars. . Legal liability to anyone as a consequence of their actions. This could arise out of the ownership or occupation of the house or car or otherwise. In particular, Laura operates a business and could be exposed to liability for mistakes causing financial loss. . Medical expenses will always arise. With young families, doctors are often called. The Bellamy's need in this area ranges from minor ailments to serious illness that need medical attention, possibly even hospitalisation. · Others could be identified. AYB250 Personal Financial Planning Topic 6 Tutorial Solutions -1-
2. Sally has a small amount of life insurance provided through her superannuation fund. She is thinking of applying for additional coverage but is worried about filling in an application form and/or having to attend a medical examination. Six months ago Sally was diagnosed with hyper-tension and in response to this she gave up smoking. She is quite confident that her health has improved as a result although she has not been back to a doctor to confirm this. Given her improved health Sally's partner has suggested that she not mention the hyper-tension in any application but Sally is unsure of the consequences of failing to declare her medical history