Basics of Life Insurance: Total and Permanent Disability (TPD)
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Questions and Answers

Under which condition is a person considered Totally and Permanently Disabled?

  • Loss of one limb below the wrist
  • Loss of hearing in one ear
  • Total and irrecoverable loss of sight of BOTH eyes (correct)
  • Severe mental illness

    • What is the primary purpose of critical illness coverage?

  • To provide a lump sum payment upon death
  • To cover loss of income upon diagnosis of a critical illness (correct)
  • To provide retirement benefits
  • To offer investment opportunities

    • Which company was the first to offer coverage for 39 critical illnesses?

  • AXA Malaysia
  • AIA Malaysia (correct)
  • Etiqa Insurance
  • Prudential Malaysia

    • How many critical illnesses are covered by Prudential Malaysia's policy?

    <p>43 critical illnesses</p> Signup and view all the answers

    What is the minimum number of limbs that must be severed for a person to be considered Totally and Permanently Disabled?

    <p>Two limbs</p> Signup and view all the answers

    Which type of family does not require a huge amount of life insurance?

    <p>Retirees with no dependents</p> Signup and view all the answers

    According to conventional wisdom, who should purchase an adequate amount of life insurance?

    <p>Income-generating breadwinner</p> Signup and view all the answers

    What is the primary purpose of an endowment insurance policy?

    <p>To accumulate savings over a specific period</p> Signup and view all the answers

    What type of family may result from divorce?

    <p>Single-Parent Families</p> Signup and view all the answers

    What is the death benefit payable to the beneficiaries if the insured dies before the maturity of an endowment insurance policy?

    <p>Face Amount only</p> Signup and view all the answers

    Why would a single mother not receive financial support from their ex-spouse?

    <p>Their ex-spouse has gone astray</p> Signup and view all the answers

    What is characteristic of a Sandwich Family?

    <p>The working generation is sandwiched between two other generations</p> Signup and view all the answers

    What is the primary feature of an annuity contract?

    <p>Guaranteed regular coupon payments</p> Signup and view all the answers

    What is the main difference between an endowment insurance policy and a term insurance policy?

    <p>Savings element</p> Signup and view all the answers

    How much life insurance do both spouses need in a double-income family?

    <p>An equivalent amount</p> Signup and view all the answers

    What is the primary advantage of an investment-linked insurance plan?

    <p>Combination of insurance and investment</p> Signup and view all the answers

    What is one of the flexibility benefits of an investment linked plan, in terms of premiums?

    <p>The amount of premiums can be varied from time to time.</p> Signup and view all the answers

    How is the Death Benefit calculated in an Investment Linked Plan?

    <p>Face Amount + Actual Accumulated Cash Value</p> Signup and view all the answers

    What is the purpose of the Human Life Value Method?

    <p>To estimate the amount of life insurance needed on a person's life</p> Signup and view all the answers

    What is the formula to calculate the Balance premium to be invested?

    <p>Premium - Initial Sales Charge</p> Signup and view all the answers

    What is the unit price of the fund in the given example?

    <p>RM0.50</p> Signup and view all the answers

    What is the Cash Value under Single Pricing calculated as?

    <p>(Number of units x Unit Price) - (Mortality charge + Policy fee)</p> Signup and view all the answers

    What is the primary assumption made in the Human Life Value method regarding the breadwinner's earnings?

    <p>Earnings remain constant throughout the entire career</p> Signup and view all the answers

    What is the impact of varying the discount rate on the Human Life Value calculation?

    <p>It leads to different results</p> Signup and view all the answers

    What is the main advantage of the Needs-Based Approach over the Human Life Value method?

    <p>It provides a more comprehensive method of determining life insurance needs</p> Signup and view all the answers

    What is the formula used to calculate the Human Life Value using the Present Value of Annuities (PVA) table?

    <p>Human Life Value = PMT x PVA table factor</p> Signup and view all the answers

    What is not considered in the Human Life Value method?

    <p>All of the above</p> Signup and view all the answers

    What is the age at which Aishah plans to retire?

    <p>60 years old</p> Signup and view all the answers

    Study Notes

    Basics of Life Insurance

    • Total and Permanent Disability (TPD) is when a person is unable to perform daily living activities and will never be able to work again.
    • To fulfill TPD conditions, a person must meet one of the following:
      • Total and irrecoverable loss of sight in both eyes
      • Severance of two limbs at or above the wrist or ankle
      • Total and irrecoverable loss of sight in one eye and loss of one limb at or above the wrist or ankle
    • Critical illness cover is for 36 debilitating diseases, with some insurers covering up to 43 illnesses.

    Types of Families and Life Insurance Needs

    • Single breadwinner/traditional families: the breadwinner should purchase an adequate amount of life insurance.
    • Double-income families: each spouse should purchase an equivalent amount of life insurance for their financial contribution.
    • Single-parent families: the parent who is the primary caregiver may be financially dependent on the estranged spouse's monthly financial contribution.
    • Sandwich families: the working generation is sandwiched between the older retired generation and the younger still school-going generation.

    Types of Life Insurance

    • Endowment insurance: a type of term insurance that incorporates a savings element, often used for specific goals such as a child's education savings plan or personal savings plan.
    • Annuities: the payer deposits regular premiums for a specific period and receives guaranteed regular coupon payments from the insurance company upon maturity of the policy.
    • Investment-linked plans: a type of insurance that combines insurance (protection) with investments (savings), offering flexibility in protection and investment choices.

    Computation of Cash Value under Single Pricing

    • Initial sales charge is deducted from the premium
    • Balance premium is invested in a fund, and the number of units purchased is calculated
    • Cash value is calculated by subtracting mortality charge and policy fee from the total value of units purchased

    The Amount of Life Insurance to Own

    • Human Life Value Method: a simple method to quantify the amount of insurance needed on a person's life, considering average annual income, remaining years till retirement, and discount rate.
    • Disadvantages of the Human Life Value method: assumes constant earnings, doesn't consider variations in income or expenses, and doesn't account for inflation on future earnings and expenses.
    • Needs-Based Approach: a more comprehensive method of determining an individual's life insurance needs based on their unique needs and priorities.

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    Description

    Learn about the basics of life insurance, specifically Total and Permanent Disability (TPD) and its conditions. Understand what constitutes TPD and how it affects life insurance policies.

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