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Insurance Case Studies

Case Study 1

Sarah’s cancer shock – Working as a primary school teacher in regional NSW, meant that Sarah led a hectic life.  At age 46, with two small children and a class of Grade 4s, during the week, there was rarely a dull moment.

Recently, Sarah visited her local doctor for a pap smear. The test had returned an abnormal reading and she was referred to a specialist, who arranged for a biopsy. The result confirmed the presence of abnormal cells on her cervix with a ‘CIN 3’ grading.  The specialist explained, this is an early stage of cancerous growth.

Sarah required a small operation to remove the abnormal area and she would need to be regularly tested to ensure that there was no re-occurrence.  The good news was that she would likely make a complete recovery.

A year before the initial screen, Sarah’s adviser had recommended she purchase a trauma policy of $200,000, which provided payment for a range of pre cancerous conditions.  When she was diagnosed with the very early stages of cervical cancer, Sarah received a lump sum payment of $20,000.  The insurance payment meant Sarah didn’t have to worry about taking time of work, or the cost of traveling to receive treatment. 

Case Study 2

Toby’s heart attack scare - Admittedly, Toby was not at the peak of his physical fitness.  Aged 58, he worked an average of 9-10 hours a day in a job that saw him spend the majority of his day at a desk or seated in meetings.  Ultimately, he struggles to find time to get some physical exercise.

One morning, on his way to a particularly stressful day at work, Toby felt shooting pain in his chest and some numbness in his left arm.  The pain subsided after a while but it left him breathless and very concerned.

Toby visited his GP, who referred him to the emergency department at the local hospital.  He then had some tests conducted to measure the flow of blood in his heart.

The specialist explained that Toby was experiencing chest pain as the blood vessels in his heart were blocked by plaque build-up. This meant he would require an angioplasty to help the blood to flow better.

Fortunately, while meeting with his adviser a year earlier, Toby decided to take out a trauma insurance option.  Because of this, Toby received a lump sum of $150,000.

The good news was that the chest pain was the impetus for Toby to change his lifestyle.  While he worked hard, he started to monitor his diet more carefully, regularly went on a walk during lunchtime and started to get off the train a stop earlier than usual so he could walk home.  Toby was even giving serious thought to putting his tennis racquet out of storage and re-joining the local club.

Case Study 3

The example below is based on Sam, an accountant, who is 40 years old and a non-smoker on the top marginal tax rate of 45%.

The table describes the gross cost of Sam’s premium for a life insurance and his total and permanent disability (TPD) policy, with benefits of $2 million (includes the total of the life insurance premium, plus income tax or contributions tax).

  Ordinary business Concessional superannuation contributions
Annual premium $5,000 $5,000
 Income tax payable @ 45%  $4,090  Nil
 Net fund tax  Nil $0*
 Total grossed up personal cost  $9,090  $5,000

*This assumes there is a deduction on the insurance premium for the fund trustee which offsets the tax on the contribution without any cash flow implications.

Note: If the TPD insurance is ‘own’ occupation, then under current law it is doubtful whether the premium would be deductible.

Affordability comparison

In comparison, the after-tax dollars available to Sam to purchase life insurance within and outside of super is significant. In Sam’s situation a before-tax budget of $5,000 would purchase:

  • $720,000 of life insurance and TPD cover outside of super or
  • $1,413,000 of life insurance and TPD cover within superannuation

Note: The above premiums and insured benefits were calculated assuming Sam is an accountant and a non-smoker who requires ‘Any’ occupation TPD definition using the CommInsure CALQ quotation system in June 2009.