Planit:Life and Disability Insurance in One Policy Exercise Answer Key

Question One:

Ren and Shou Bai want to know the implication of event-based scenarios on their ability to reach their life goals. They have given you some summary insurance information. Ren tells you that he owns permanent life coverage of a value of $120,000, and disability insurance that provides a non-indexed $2,000 monthly benefit. He has Group coverage through his work that pays out $100,000 if he were to die or become disabled. Shou has no permanent life insurance, but has a Term Life policy worth $110,000. While active, this policy pays out $30,000 as a lump sum on disability. She has additional disability insurance that provides non-indexed benefits of $1,500 each month.

Answer:

On the Insurance Screen:

1. Under Client’s Permanent Insurance enter $120,000 for Ren’s permanent life coverage
2. Under Client’s Term/Group Insurance, enter $100,000 for the Group policy he has through work.
3. In the Spouse’s Permanent Insurance field, enter $0 since Shou has no coverage.
4. Set the Spouse’s Term/Group Insurance to $110,000, since this is what she would receive from her policies if she were to die.
5. In the disability section, set the Client’s Annual Income Benefit to $24,000 (12 months x $2,000 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 work policy pays out this amount if he were to become disabled and unable to work.
8. In the disability section, set the Spouse’s Annual Income Benefit to $18,000 (12 months x $1,500 monthly benefit) for her second disability policy.
9. The Index Rate on Benefits can remain at 0%, since they are not indexed.
10. Under Spouse’s Lump Sum on Disability, enter the $30,000 available from her Term Insurance.
11. 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 insurance benefits.
12. Click Save at the bottom of the screen

Note: You do not need to enter any “Life Insurance Reduction on Disability” Goals, since there are no permanent policies that pay out on either death or disability.

Question Two:

Abdul Haqq tells you that he owns permanent life coverage of a value of RM 200,000, and he has Group takaful coverage through his work that has a sum assured of RM 75,000 and a participant’s account with RM 5,000. In the event of his disability, both of these policies immediately pay out their full amount. Maznita Omar has no permanent life insurance or takaful, but has family takaful that has a sum assured of RM 90,000 that she plans on participating in until she retires. Another RM 30,000 is from her own participant’s account. It is due to expire in about five years. While active, this policy also pays out its full lump sum on her complete disability. You estimate her participant’s account will grow at 7.0% annually based on her contributions and dividend on investments.

Answer:

Use the screen drop-down menu to skip to the Insurance screen, since the Assets & Liabilities have already been entered.

1. Under Client’s Permanent Insurance enter $200,000 for Abdul’s permanent life coverage
2. Under Client’s Term/Group Insurance, enter $80,000 (the combined RM 75,000 sum assured and the RM 5,000 participant’s account) for the Group takaful he has through work.
3. In the Spouse’s Permanent Insurance field, enter $0 since Maznita has no coverage.
4. Set the Spouse’s Term/Group Insurance to $120,000 since both the participant’s account of RM 30,000 and the contribution pool will pay out RM 90,000.
5. In the disability section, set the Client’s Lump Sum on Disability to $280,000, since both of his insurance policies payout their total amount if he were to become disabled and unable to work.
6. Under Client’s Lump Sum on Disability, enter the total $120,000 available from her term takaful.
7. The Will benefits be subject to income tax drop-down menu should be set to No for both client and spouse, based on the taxabilit of insurance benefits.
8. Click Save at the bottom of the screen
9. Use the drop-down menu to continue to the Pensions and Other Revenues screen.

In the Objectives screen, you must add a Life Insurance Reduction on Disability goal for Abdul.

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 Abdul is the only one with permanent insurance.
4. In the Retirement Amount Per Year enter $0, since this is an event-specific goal only.
5. The From Year and To Year will both be the year of Abdul’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 Abdul’s death.
9. The Need on Disability field can be changed to $200,000 – the amount of Abdul’s permanent insurance. 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 assumed mortality.
10. Select the Fixed Period option under the drop-down list beside Model As, since this stream is not affected by retirement.
11. Click Save to return to the summary Objectives screen.