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Insurance Advice - Section A

Insurance Advice - Answer 1

  1. Pure risk: This type of risk takes place in a condition when there is a just a chance of only loss or perfectly no loss. Example of pure risky situations are destruction of property, loss of income because of sickness, etc.
  2. Speculative risk: The type of risk that lead to a situation of either loss or profit is called speculative risk. These includes financial and commercial risks like risk with regard to development of new product, foreign exchange, interest rate, etc.
  3. Diversifiable risk: The risk that may affect a specific organization or industry is known as diversifiable risk. This risk can be compacted by undertaking corrective action in the right direction. This is also called unsystematic risk. For example: technology change, change in organizational plan, consumer preferences, etc. (Pilbeam 2018).
  4. Non-diversifiable risk: The risk that is not under control or cannot be controlled by taking any measure is known as non-diversifiable risk. This is also called systematic risk. For example: money supply, tax rates, changes in inflation rate, etc. 

Insurance Advice - Answer 2

The consumer protection laws that are applied in the context of providing advice about insurance in Australia are listed below:

  • Insurance Act, 1973: The major objective of this legislation is to safeguard the interest of policyholders by setting provisions to make sure that policyholders’ interest is completely protected in case of winding of a life company. Restrictions have been imposed on requirements that are being designed to encourage management of insurance business (Cumming et al., 2016).
  • Insurance Contract Act, 1984: The major objective of this Act was to maintain an adequate flow of information between insurer and insured. Insurer is obliged to provide all relevant to the insured to help them in making proper decision with regard to different insurance contracts. This information includes terms and limitations of policies, rules governing relationships, etc.
  • Life Insurance Act, 1995: This is meant for protection of owners of life insurance policies with regard to continuous development by ensuring judicial management of companies whose continuation is in danger due to unsatisfactory financial position or management of the enterprise. It becomes important to maintain the stability of the financial system of the country.

Insurance Advice - Answer 3

  1. Underwriting is regarded as the procedure which is performed to compute the amount of premium required to be paid by the insurer or claimant of life insurance policy (Born, 2019). There is an application form in which all the personal details along with medical data is given by the insurer to the insured. For example: details regarding occupation, financial position and health, business and residential address, etc. all must be provided.
  2. Amount of premium is influenced by a number of factors. These are listed below:
  • Age of insurer: Premium amount changes with age. In case of lower age applicants, lower premium is charged as there is lower risk of life with them. While, in case of upper age clients, premium rates increase.
  • Recent health status of insurers: Premium amount is adversely affected by the health conditions of the insurer. In case, the health conditions or status of the applicant is found in a good situation then lower premium is charged as applicant here presents lower risk to life as compared to a person undergoing surgeries or operations. Underwriter can simply refuse the application of life insurance in case, the applicant is undergoing under regular treatment as to accept someone’ application with major illness is regarded risky.
  • Status of smoking: High premium is charged from a smoker applicant as life risk increases.

Insurance Advice - Section B

Insurance Advice - Answer 1

a)

i) Life insurance policy is regarded as good when it would be able to cover all the debt commitments and obligations that are being owned by the person.

remaining debt

 

Car loan

10,000

Credit card

5,000

Remaining mortgage

250,000

 

265,000

The expenses goals which are required by the individual that is planned by her before her death

expenses that need to be covered

 

Funeral expenses

15,000

Final medical expenses

20,000

Tax and legal costs

15,000

Emergency fund

20,000

Frances schooling

130000

Annual living cost

$208,000

 

408,000

   

The total insurance that is required by Courtney to fulfil her expenses goals that are pre-decided by her and the remaining debt that she still has to pay.

Total life insurance req. 673,000

The assets that can be assessed for claiming the insurance are

salary

$90,000

 

superannuation

9.50%

$8,550.00

current balance of superannuation

$100,000

 

total superannuation

$108,550.00

 

ii) An efficient combination of life insurance with income Protection Insurance would be considered beneficial for Courtney. The life insurance cover will provide the fund to the family after the death of the insurer and will help the family in fulfilling their needs and requirements.

The options of premium that are available to Courtney are as follows:

The other options of premium available for Courtney that can also be considered are mentioned below –

ii) Total and permanent disablement insurances – This type of insurance cover helps in situation where an individual is suffering major disease that may have led to permanent and total disablement.

Advantages

  • All kind of medical expenses are effectively covered under this policy.
  • This will help in fulfilling mortgage and other debt related obligations.
  • Helps in managing all the ongoing expenses.

Disadvantages

  • Disability due involvement in life-threatening sports
  • under this policy, it is mandatory to survive for a minimum of 14 days.
  • Disability here must be caused by war act. disability caused by an act of war
  1. Trauma insurance – This insurance policy is also designed to ensure benefits when a person suffers from serious health misery.

Advantages

  • This covers all type of rehabilitation and medical expenses.
  • All the income that could have been lost will be replaced by this.
  • All type of debt obligations and commitments can be repaid by this.

Disadvantages

  • There are conditions when any particular medical treatment or illness are not covered under this policy.
  • Here, the illness must be caused due to some pre-existing condition or health issues.
  • The condition or issue must have been diagnosed within a period of 90 days.

 iii) Several personal advices that may help Courtney to undertake effective decision making process with regard to selection of policy of insurance to secure Frances along herself are as follows:

  • Develop an understanding that insurance is about the security in terms of finance and majorly to protect independence on other individuals.
  • Obtain a clear picture of the policy before opting for one. Read all the terms, conditions and limitations to get information about what all things are included and excluded from the given policy.
  • Insurance requirements must be precisely evaluated before giving any confirmation on it.
  • Measure the risk in an effective and efficient manner so that it can be reduced.

b)

A financial adviser must have effective and efficient communication and interactive skills to perform his/her role in a proper manner. Financial advice goes through the following process:

  • Develop rapport with client: The advising process initiates with the development of rapport with the perspective client. This forms the basis for the whole process.
  • Identification of client’s requirements and needs: After developing rapport, explore the needs of the clients by obtaining information from them like ambitions, objectives, personal details, medical well-being, experience from past investments, occupation, income sources, number of family members, etc. All this information helps the adviser in giving best insurance advice to the client.
  • Approval of needs of client: After generating all the information, confirm all those needs in several manner like by carefully observing the client, by listening properly, by reaffirming the needs, by adequately asking them in case of doubt, etc.
  • Identify adequate products and provide recommendations: It is considered as the major duty of the financial advisers to perform for the goodness of client. Different products along with their features must be provided clearly to the client like coverage, benefits, limitations, maturity period, premium payments, etc. After all the products, the products that will help in satisfying the client’s needs must be recommended to him /her.
  • Gather client agreement: Client agreement must be prepared prior to giving advice. In case the client has any objections with the product, that must be acknowledged and clarified.
  • Enacting decision of client: after generating agreement, client decision must be enacted in an effective manner. All kind of paperwork and documentation work must be clearly set. The information for underwriting process must be assessed.
  • Closing of interaction: The financial adviser must pass on a concluding statement to make sure that the client would feel positive and confident about his own decision. Maintain proper gesture and have a smile on face and acknowledge the client to become a part of organization.
  • Review regularly: Client file and situations must be reviewed regularly by the financial advisers and must develop a risk management plan.

Insurance Advice - Answer 2

a)

  1. In case of term life insurance policy bought by the client, premium of the policy would not charge to tax.
  2. In case of income protection owned by the insured with their employer, the policy owner has to make payment of tax on capital gains.
  • In case of trauma policy, the tax is not charged on the amount of premium.

b)

There are several situations where the premiums are not tax deductible while taking into consideration various types of business owners’ insurances. These are as follows:

Self-insured reserve fund: The premium payments that are being made with regard to self-insured reserve fund are not tax deductible. However, if there are some losses resulting from this fund can be deducted.

Policy: the amount of premium that are being paid on policies by the insurers to ensure that lost income due to major sickness or disability are not deductible (Boop, 2019).

Corporate owned life insurance: The amount of premium that is being paid on several types of life insurance and annuities are also not tax deductible.

Insurance for loan securing: The insurance that have been selected to secure a specific loan are not tax deductible. For instance, the insurance owned to get a mortgage is not tax deductible.

Insurance Advice - Answer 3

One Care Insurance is the name and version of obtained PDS. Various kinds of lump and monthly benefits are being provided by this kind of insurance product. Trauma cover, business expense cover, income secure cover, total and permanent disablement, child cover, living expense cover, etc. all are offered under this version.

When an individual is detected with a particular medical condition or any severe injury as mentioned in the product disclosure statement, a claim for trauma can be made. Under the cover of trauma, organ transplants, cancers, different heart attacks are covered.

1. Under the following circumstances, various benefits are not paid under trauma cover:

  • Benefits arising from condition of trauma will not be paid if that outcome is arising due to omission by the applicant or due to intentional act committed by the insured person (Scheuermann, 2019).
  • In case of HIV whether medically or acquired occupationally, benefits with regard to trauma policy will not be paid off, if any treatment for AIDS that has been approved by Australian Government is identified that may aid in eradicating or making HIV non-active as well as non-infectious.
  • Again in case of trauma policy meant for HIV whether medically or occupationally acquired is not liable to be paid, if there is any effective progress of medical treatment that will help in avoiding the existence of AIDS.
  • Benefits with regard to limited death advantage will not be paid if the applicant whose life has been insured under the trauma cover has not even survived for first thirteen months because of any acts done intentionally by him/her.
  • The benefits meant under Severity Trauma Cover would not be paid if the health of the person has been affected due to use of illicit drugs whether indirectly or directly by the insured individual.
  • Benefits will not be paid under trauma cover if the advice given by the medical practitioner has not been followed by the person with regard to his specific condition under severity trauma cover.

2. Under trauma insurance, several kinds of policy are made available for the individuals. These are as follows:

  • Multiple or individual covers under identical policy: A person can opt for the business expense cover or living expense cover or trauma cover under a single policy. Multiple covers can also be selected by the individual under the same policy. For instance: an individual may have a policy under trauma cover only or may have a trauma cover combined with life cover and business expense cover.
  • Attached covers: an individual who is having multiple covers under the same policy may attach those covers.
  • Linking covers under distinct policies: a link can be formed between trauma cover and life cover or between trauma cover and total and permanent disablement cover with a same policy. This type of structure formed is called super link trauma arrangement.
  • Under trauma policy, there are various benefits that are being offered and the situations where they can be paid are listed below:
  • If all the trauma conditions are being satisfied by the individual or the person has been diagnosed for a life insured while the trauma cover is valid, then the individual will be provided with the benefits (Weedige et al., 2019).
  • If the person is showing any symptom that may further led to severe trauma situation or the person is being diagnosed for the life insured then he/she becomes liable to get the benefits of trauma cover.
  • In case, the medical practitioner has diagnosed the person and has provide certification specifying the trauma conditions, then the individual will get the benefits of trauma cover.
  • Under severity trauma cover, if all the advice given by the medical practitioner has been followed by the person with regard to trauma conditions then he/she will be paid with benefits.
  • If the trauma condition in life insured has been duly approved by the medical practitioner who is a specialised physician.

Insurance Advice - Answer 4

a) the comparison and contrast between personal sickness and accident insurance and life insurance products is as follows:

  • In case of life insurance policy, the benefits are paid out when the person whose life was insured has died with the purpose to fulfill the needs of the dependents or his loved ones whereas, accidental insurance policy do not take into account the natural causes of death. Therefore, this policy does not provide adequate protection to the family members. This can be considered as a preferable option when any kind of extra protection against death due to accidental reasons is required and that person enjoy risky and active lifestyle. Accidental insurance policy can be acquired if the individual fails to get life insurance due to several medical reasons and want protection against any kind of sickness or accident.
  • A cover is provided to the person or his family members only in the case of death of the policyholder in case of life insurance policy. On the other hand, a protection to the person or family members is provided only in the event in accidental death under the personal accident policy. This policy also covers temporary total disablement, partial permanent disablement and total permanent disablement caused due to an accident.
  • Life insurance policy cannot be regarded as cost efficient and various areas like temporary total disablement, accidental medical expenses and partial total disablement, etc. are not duly covered under this policy (Nayak, 2019). Whereas, accident policy is regarded as cost efficient and includes all the areas such as temporary total disablement, partial permanent disablement and accidental medical expenses and so on.
  • There is a requirement to undergo medical tests in case of life insurance policy while in case of personal accident policy, medical tests are not required to be performed.
  • Personal accident policy is relatively less costly as compared to life insurance policy.
  • To avail the benefits of life insurance policy, maximum age to enter is 60 years while maximum age to enter accident policy is 70 years.
  • There is no option to renew the life insurance policy in any age. On the other hand, there are provisions to renew the personal accident policy up to the age of 70 years.

b) The 3 different groups that can avail the benefits after being covered under accident cover and personal sickness are mentioned below:

  • Contractual or part time workers/ employees: Any part time worker or any person who is working as an employee can receive the benefits under accident policy and personal sickness. The living of such person relies on his personal well being and the insistent period of time may affect his income and savings and lifestyle of the whole family.
  • Sole traders/ small business owners: Person who himself perform the business operations to earn his living are entitled to claim benefits under accident and personal sickness policy. This group category comprises of sole traders, contractors and owners of small business operations. Sole traders and individuals are restricted to apply for workers compensation insurance. Thus, it makes it essential for those people to apply for personal sickness and accident policy to safeguard themselves.
  • Individuals who are not qualified for income protection insurance: People who face any kind of difficulty in performing their task due to an accident that have made them sick or injured to perform such task can be benefitted from the accident and personal sickness policy. For instance, consider a person whose legs have been broken due to accident that have made him unable to perform his task. In such cases, the policy of accident and personal sickness will help in providing regular income to pay out necessary expenses and to fulfill various financial obligations.

The number of road accidents are continuously rising. An accident may either led to the death of a person or may cause severe injury to the person that he becomes unable to carry out certain tasks. Effective and efficient measures are being taken by the government in order to decrease the number of road accidents and to ensure adequate safety of people on road. Road traffic accidents can be considered as the major challenge to the human beings’ existence on earth. All these road accidents are likely to make it necessary for the people to acquire accident and personal sickness policy. It is considered as the major duty of every individual to keep himself safe. Government rules and traffic procedures are not sufficient to safeguard each and every individual. The individuals can opt for the personal sickness and accident policy to maintain financial security that will help them in a situation of any kind of mis happenings. Some accidents may lead to on spot death of the person whereas some may cause partial or total disability. So, it is considered essential for each individual to ensure safety from such kind of risky situations arising from road accidents as they may significantly affect their financial well being. Only death cases are covered under the term policy or life insurance policy. However, accident policy fetch compensation for the losses being incurred due to an accident, total disability or partial disability. A person does not remain capable to perform several operations after accident for some period of time and may significantly reduce his productivity and thus, unfavourably affect the income of the family.

References for Insurance Advice

Boop, G. 2019. Business insurance premiums are tax deductible. [Online]. https://www.thebalancesmb.com/business-insurance-premiums-are-tax-deductible-462519

Born, P. (2019). Genetic Testing in Underwriting: Implications for Life Insurance Markets. Journal of Insurance Regulation38(5).

Cumming, C., Kinner, S. A., & Preen, D. B. (2016). Closing the Gap in Indigenous health: why section 19 (2) of the Health Insurance Act matters. The Medical Journal of Australia205(6), 283.

Nayak, H. (2019). Effectiveness of insurance contract in insurance. International Journal of Research in Social Sciences9(6), 576-603.

Pilbeam, K. 2018. Finance & financial markets. Macmillan International Higher Education.

Scheuermann, J. E. (2019). Where's the intent in the new restatement of the law, liability insurance?. Tort Trial & Insurance Practice Law Journal54(1), 125-152.

Weedige, S. S., Ouyang, H., Gao, Y., & Liu, Y. (2019). Decision making in personal insurance: Impact of insurance literacy. Sustainability11(23), 6795.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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