Planit:Life and Disability Insurance in One Policy

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Example Problem One:

Alvin Cheng has an insurance policy worth $150,000 that covers his whole life or would pay out a $100,000 lump sum benefit if he were to become disabled. If Alvin were to become disabled, he would not receive his whole life benefit. His insurance policy through work is a two times salary plan, so would pay $440,000 in the event of his death. It also covers $4,000 in a monthly benefit in the event of disability, not indexed to inflation. Grace Cheng has $80,000 of whole life insurance, which pays out a separate disability benefit of $30,000 lump sum.

Solution using Summary Insurance Coverage:

From the Insurance Screen:

  1. Under Client’s Permanent Insurance enter $150,000 for Alvin’s permanent life coverage
  2. For Client’s Term/Group Insurance, enter the $440,000 Alvin would receive through work.
  3. In the Spouse’s Permanent Insurance field, enter Grace’s $80,000 coverage.
  4. Set the Spouse’s Term/Group Insurance to $0.
  5. In the disability section, set the Client’s Annual Income Benefit to $48,000 (12 months x $4,000 monthly benefit)
  6. The Index Rate on Benefits can remain at 0%, since they are not indexed.
  7. Under Client’s Lump Sum on Disability to $100,000, since his personally owned policy pays out this benefit if he were to become disabled and unable to work.
  8. Under Spouse’s Lump Sum on Disability, enter the $30,000 available.
  9. The Will benefits be subject to income tax drop-down menu should be set to No for both client and spouse, based on the taxability of insurance benefits.
  10. Click Save at the bottom of the screen


The way the Web Advisor treats the life insurance and disability insurance for long-term calculations means that any permanent life insurance that pays once on disability OR death, is actually calculated as paying out twice: once when the person becomes disabled, and another time on death at the assumed age of mortality. To correct this, you must add an event-specific goal for the amount of the permanent insurance.

Use the Next arrows or the drop-down menu to continue to the Objectives screen. Some objectives may have already populated the screen, such as a child's education and retirement lifestyle.

  1. To add a new objective, click on the Add button above the existing entries.
  2. In the Description field, enter an appropriate name, such as Life Insurance Reduction on Disability
  3. In the drop-down menu beside Need For, choose Client, since we are counter-acting for Alvin’s doubled life insurance.
  4. In the Retirement Amount Per Year enter $0, since this is an event-specific goal.
  5. The From Year and To Year will both be the year of Alvin’s assumed mortality since that is when the life insurance would be included incorrectly.
  6. The Index Rate should be set to 0%, since the amount will not index when paid out.
  7. The event-based needs Radio button should be set to Amount
  8. The Need on Death field can be changed to $0, since the life insurance will pay out once, appropriately on Alvin’s death.
  9. The Need on Disability field can be changed to $150,000 – the amount of Alvin’s permanent life insurance policy.

Note: You do not need to include the value of the term or work insurance, since it will not be assumed to still be active at Alvin’s assumed mortality of age 80.

  1. Select the Fixed Period option under the drop-down list beside Model As, since this stream is not affected by retirement.
  2. Click Save to return to the summary Objectives screen.


Go to the exercise to test your knowledge on these types of insurance policies.