Planit:Detailed Life and Disability in One Policy Case Study

From Planipedia

Example Problem One:

The Chengs are concerned that the event of Alvin’s death would cause financial instability and want to know the funds required to replace his income. They have given you the detailed information for their insurance:

• Alvin’s Whole Life Policy of $150,000 is designated to Deshi on his death. Right now he pays a premium of $170 each month.
  • In the event of disability, this policy pays out a $100,000 benefit. 25% is paid out in the first year, 25% in the second year, and the remaining 50% in the third year. It is not taxable, and not indexed. If Alvin were to become disabled, his whole life policy would become void.
• Grace’s Whole Life Policy of $80,000 is designated to Alvin on her death. Right now she pays a premium of $1000 each year.
• Alvin’s Group Life Coverage of $440,000 is company paid and Grace is the beneficiary.
  • In the event of disability his work will provide a monthly benefit of $4,000 until his age 62. It is non-indexed, and there is a 171-day waiting period.
• Grace’s separate Disability Insurance pays out an immediate lump sum of $30,000 all in the first year. This amount is not indexed and she pays $90 each month as a premium.

Solution using the Life Insurance Calculator:

Go directly to the Insurance screen.

1. To enter the new detailed information, click Policies in the right hand corner.
2. Click Policy again in the right hand corner
3. Enter a Description for Alvin’s personally owned insurance.

1. Set the Account Type and Regulatory Type to Insurance Policy
2. Ensure that the Ownership is set to 100% for Alvin Cheng.
3. Here you can enter the Payment Mode of Monthly, and the $170.00 Payment Amount.
4. Click Save

1. Alvin’s Personal Life Policy should now appear on the summary screen. Click Coverage beside it to add value to the policy.
2. Enter a Description and set Type to Whole Life.
3. The Insured is Alvin
4. The Death Benefit is $150,000.
5. Set Deshi as the Beneficiary in the drop-down menu, click Save
6. You can also add the disability coverage Alvin has through his personal policy to the same policy account. Click Coverage beside it to add value to the policy.
7. Enter a new Description and set the Type to Disability (Personal).
8. The Insured is Alvin, and the Lump Sum Benefits are $100,000.
9. For the 1st Year enter 25%.
10. The 2nd Year was 25% also.
11. The 3rd Year pays out the remaining 50%.
12. Uncheck the Taxable Benefits checkbox, since they are not taxable when paid.
13. The Index Rate is already correct at the default of 0%.
14. Click Save

To add Alvin’s group life coverage:

1. Click Policy again in the right hand corner
2. Enter a Description for Alvin’s company paid life insurance.
3. Set the Account Type and Regulatory Type to Insurance Policy
4. Ensure that the Ownership is set to 100% for Alvin Cheng.
5. Here you can enter the Payment Mode as any of the options, since the Payment Amount is $0
6. Click Save
7. Alvin’s Group Life Policy should now appear on the summary screen. Click Coverage beside it to add value to the policy.
8. Enter a new Description and set the Type to Group Life.
9. The Insured is Alvin, and the Death Benefit is $440,000 – two times his salary.
10. After setting Grace as the Beneficiary in the drop-down menu, click Save
11. The disability component covered by this group benefit can be added here as well. Click Coverage beside Alvin’s Group Coverage to add value to the policy.
12. Enter a new Description and set the Type to Disability (Group).

1. The Insured is Alvin
2. The Monthly Benefit on the left should be $4,000.
3. The Waiting Period was noted to be 171 days, so enter 171.
4. Since Alvin is only covered until age 62, set the Or Until Age field to 62.
5. Uncheck the Taxable Benefits checkbox, since they are not taxable income.
6. The Index Rate is already correct at the default of 0%.
7. Click Save

To add Grace’s personally owned life insurance:

1. Click Policy again in the right hand corner
2. Enter a Description for Grace’s personally owned life insurance.
3. Set the Account Type and Regulatory Type to Insurance Policy
4. Ensure that the Ownership is set to 100% for Grace Cheng.
5. Here enter the Payment Mode of Annual, and the Payment Amount of $1000.00
6. Click Save

1. Grace’s Personal Life Policy should now appear on the summary screen. Click Coverage beside it to add value to the policy.
2. Enter a new Description and set the Type to Whole Life.
3. The Insured is Grace, and the Death Benefit is $80,000.
4. After setting Alvin as the Beneficiary in the drop-down menu, click Save

To add Grace’s personally owned disability insurance:

1. Click Policy again in the right hand corner

1. Enter a Description for Grace’s personally owned disability insurance.
2. Set the Account Type and Regulatory Type to Insurance Policy
3. Ensure that the Ownership is set to 100% for Grace Cheng.
4. Here enter the Payment Mode of Monthly, and the Payment Amount of $90.00
5. Click Save
6. Click Coverage beside it to add value to the policy.
7. Enter a new Description and set the Type to Disability (Personal).
8. The Insured is Grace, and the Lump Sum Benefits are $30,000 as was previously revealed.
9. For the 1st Year enter 100% so all of the policy will pay out at once.
10. Uncheck the Taxable Benefits checkbox, since they are not taxable when paid.
11. The Index Rate is already correct at the default of 0%.
12. Click Save

At the end, all of your detailed insurance policies should look something like the one below.

Don't forget to add the objective for Life Insurance Reduction on Disability for the Client's Personal Policy!