28 Questions
Under which condition is a person considered Totally and Permanently Disabled?
Total and irrecoverable loss of sight of BOTH eyes
What is the primary purpose of critical illness coverage?
To cover loss of income upon diagnosis of a critical illness
Which company was the first to offer coverage for 39 critical illnesses?
AIA Malaysia
How many critical illnesses are covered by Prudential Malaysia's policy?
43 critical illnesses
What is the minimum number of limbs that must be severed for a person to be considered Totally and Permanently Disabled?
Two limbs
Which type of family does not require a huge amount of life insurance?
Retirees with no dependents
According to conventional wisdom, who should purchase an adequate amount of life insurance?
Income-generating breadwinner
What is the primary purpose of an endowment insurance policy?
To accumulate savings over a specific period
What type of family may result from divorce?
Single-Parent Families
What is the death benefit payable to the beneficiaries if the insured dies before the maturity of an endowment insurance policy?
Face Amount only
Why would a single mother not receive financial support from their ex-spouse?
Their ex-spouse has gone astray
What is characteristic of a Sandwich Family?
The working generation is sandwiched between two other generations
What is the primary feature of an annuity contract?
Guaranteed regular coupon payments
What is the main difference between an endowment insurance policy and a term insurance policy?
Savings element
How much life insurance do both spouses need in a double-income family?
An equivalent amount
What is the primary advantage of an investment-linked insurance plan?
Combination of insurance and investment
What is one of the flexibility benefits of an investment linked plan, in terms of premiums?
The amount of premiums can be varied from time to time.
How is the Death Benefit calculated in an Investment Linked Plan?
Face Amount + Actual Accumulated Cash Value
What is the purpose of the Human Life Value Method?
To estimate the amount of life insurance needed on a person's life
What is the formula to calculate the Balance premium to be invested?
Premium - Initial Sales Charge
What is the unit price of the fund in the given example?
RM0.50
What is the Cash Value under Single Pricing calculated as?
(Number of units x Unit Price) - (Mortality charge + Policy fee)
What is the primary assumption made in the Human Life Value method regarding the breadwinner's earnings?
Earnings remain constant throughout the entire career
What is the impact of varying the discount rate on the Human Life Value calculation?
It leads to different results
What is the main advantage of the Needs-Based Approach over the Human Life Value method?
It provides a more comprehensive method of determining life insurance needs
What is the formula used to calculate the Human Life Value using the Present Value of Annuities (PVA) table?
Human Life Value = PMT x PVA table factor
What is not considered in the Human Life Value method?
All of the above
What is the age at which Aishah plans to retire?
60 years old
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.
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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