Understanding Insurance And Estate Planning Concepts

Uberimmae Fidei and Its Relevance

Uberimmae Fidei contracts require parties to act with highest levels of utmost good faith. The concept is mostly applicable in insurance contacts where the insured and insurer are required to reveal all material information relevant to the policy. The insurer uses the information provided by the clients in deciding on whether to insure the client and the appropriate amount of premium charge (Teow, 2016).Also, the client relies on the information provided by the insurer in determining the whether to take the insurance policy. Insurance contracts therefore require parties to act with utmost good faith and reveal all material information from the time of policy marketing, acquisition, and claim processing (Singapore Statutes Online, 2017).

Uberimmae Fidei is essential in underwriting and issuing of contracts of insurance. The principle aims at getting rid of moral hazard in insurance since the insured has more information pertaining the risk to be insured. The insured is concerned with establishing the insured’s actual risk before issuing the contact. To establish the insureds risk levels, the insurer must be honest in all respects concerning the policy in order to win the trust of the client. The parties should also act with the highest level of honesty, fair dealing, and with no intention to defraud each other. Underwriting of claims is the process of assessing the claims launched by the insured to determine whether it lies within the policy (Jain, 2017). The underwriter also calculates the actual amount of claim to be paid to the insured. The principle of Uberimmae Fidei is essential in underwriting since it ensures that correct amount of claims are processed and paid.

Waiver of premium is an arrangement in an insurance policy that requires insurers not to collect premium from the insured for some period in case of disability of the insured. This provision is present in most life assurance policies although might be accompanied by extra charge on premium. Total permanent disability benefits are payments made to the insured a portion of their income in the event of disability (AIA, 2018).

• If Poh Eng contracts a major illness, No policy will pay out. The limited – premium whole life plan bought by Poh Eng 8 years ago is overdue since it was a 5 year plan. The Critical benefit benefit taken by Julian Lim would also not pay since the insured did not adhere to the principle of Uberimmae Fidei. The insurer might discover from the hospital records during underwriting that Julian Lim did not reveal all material information specifically the medical history of Poh Eng who had developed lumps in her breasts at the time of acquisition of the policy.
• If Poh Eng dies after one year, The mortgage reducing term assurance policy taken on joint basis would pay. The policy takes care of outstanding home loan in the event of death of Julian Lim or his wife(Private Medical Insurance Scheme, 2016) .
• To calculate, the amount paid by the policy we use the accumulation of annuity formula below;

Accumulated value= A(1+r)^n where; r is the discounting rate

Hence; Amount=800,000(1+0.15(15%)) ^6= 800,000(1.15) ^6=$ 1,850,448.61

Question 2: WEALTH ACCUMULATION – INVESTMENT PLANNING 

2 (a)

• TRUE
• TRUE
• FALSE
• FALSE
• TRUE
• TRUE
• TRUE
• TRUE
• FALSE

       (x)      TRUE 

                  2 (b)

1. (b) (i)

The break-even point of a put option strategy lies at the point where market price of a stock is equivalent to the original cost. Simply, it is the market price that the option must trade for the option buyer to avoid making a loss when exercising the option. For a put option, it is calculated by subtracting premium paid from the strike price.

Waiver of Premium and Total Permanent Disability Benefits

Strike price= $ 3

Premium= $0.3

Break-even price= $3- $ 0.3= $ 2.7 

2 (b) (ii)

A put option derivative that gives one the option to sell a stock at predetermined price within a certain timeline. The holder ca choose to either exercise or not. A put option buyer’s maximum loss is the premium.

Maximum loss= premium * number of shares

                        = $0.3* 100

                        = $30

2 (b) (iii)

 The maximum gain is obtained by exercising the option at the exercise price. The revenue obtained at strike price less acquisition costs gives the maximum gain from the put option.

 Income= $3*100=300

Buying price=$ 0.3*100=30

Hence, Maximum gain= 300-30=$270

Stock price	Price at expiration	Profit/loss	Cost of put option
1.5	1.5	1.2	0.3
2.0	1	0.7	0.3
2.5	0.5	0.2	0.3
3.0	0	-0.3	0.3
3.5	-0.5	-0.8	0.3
4.0	-1	-1.3	0.3
4.5	-1.5	-1.8	0.3

 WEALTH GIVING- ESTATE PLANNING

3 (a) Poh Eng does not require written approvals of her husband and children before she can revoke her insurance nomination of beneficiaries. She remains the sole insured and therefore has the right to revoke the nomination even without their consent (CPFB, 2018). Hence, the statement is FALSE.

• The purpose of SNSS is to help individuals with special needs nominated by their parents to withdraw a stated fixed monthly payout from the CPF savings of their deceased parents.
• Parents can increase their child’s accumulation by toping up their CPF accounts through their retirement Sum Topping up program or through voluntary contribution scheme, so as to create more CPF savings which is channeled to their beneficiaries SNSS(MSFD, 2018). Also, parents who have attained their payout eligibility age might opt not to receive their retirement payouts under CPF LIFE program or Retirement Sum package so as to accumulate more cash for their child’s SNSS.

An estate means all property owned by an individual. They include properties, real estate, insurance policies, businesses, and bank accounts Debts also are included as part of the estate. It is important to plan the estate efficiently to reduce tax liabilities, ensure safety of assets, and payment of debt (Financial Planning Association of Singapore, n.d).  Poh Eng should plan her effectively by following the following procedures. She should gather her estate property and liability documents, and plan her estate carefully based on tax effectiveness, safety of property, and legal requirements. She can transfer her CPF balance from her special or ordinary account to the account of her sister provided she has attained 55 years of age up to her basic health sum (Central Povidend Fund Board, n.d). To transfer the CPF balance to her sister, she should nominate her sister as the CPF account beneficiary. However, she would not be legible for tax relief in case of transfer.

• Charity organizations use the donated funds to promote community initiatives such as education and care for the disabled, or environmental conservation initiatives. Through contributing towards charity she would have created impact in the society. Donations of shared listed on SGX and Singapore traded unit trusts are tax deductible(Inland Revenue Authority of Singapore, n.d).

The insurance policies transferred to Julian Lim and Mathew would enable them get indemnity from insured perils. To transfer ownership of policies, Poh Eng would have to make an irrevocable nomination which makes her lose rights and control of the policy to the beneficiaries. The policy proceeds will be protected from seizure by creditors of the original policy holder (Life Insurance Association Singapore, 2012). The proceeds from the policy might be disaggregated for estate planning purposes for Julian and Mathew to have their separate components.

Poh Eng concerned about the livelihood of her loved ones including her mother and children, should plan her estate to benefit too. There exist many insurance arrangements which the insured can nominate his parents as beneficiaries of lump sum payout in case something happens to him. Parents can also be signed up for insurance that refunds medical expenses. Through a term life insurance arrangement, the insured receives monthly or lump sum payout in case a claim is approved (Great Eastern , n.d).  To protect the future of the children, Poh Eng should enroll in a policy that ensures that her children obtain necessities and have school fees for their education. This can be achieved through a dependents protection term life insurance, school fees insurance policy, fixed deposit account, and a school fees fund.

References

AIA. (2018, January 4). AIA Premier Disability Cover. Retrieved September 18, 2018, from AIA: https://www.aia.com.sg/en/our-products/disability-income-protection/aia-premier-disability-cover.html

Central Povidend Fund Board. (n.d). Medisave. Retrieved September 24, 2018, from Central Povidend Fund Board: https://www.cpf.gov.sg/Members/Schemes/schemes/healthcare/medisave

CPFB. (2018, February 22). CPF Nomination Scheme. Retrieved September 18, 2018, from CPFB: https://www.cpf.gov.sg/Members/Schemes/schemes/other-matters/cpf-nomination-scheme

Financial Planning Association of Singapore. (n.d). Consumer. Retrieved September 2018, 24, from Financial Planning Association of Singapore: https://fpas.org.sg/consumer/

Great Eastern . (n.d). Why do I need insurance? Retrieved 9 24, 2018, from Great Eastern: https://www.greateasternlife.com/sg/en/personal-insurance/understand-insurance/why-do-i-need-insurance.html

Inland Revenue Authority of Singapore. (n.d). Donations and Tax deductions. Retrieved September 24, 2018, from Inland Revenue Authority of Singapore: https://www.iras.gov.sg/irashome/Other-Taxes/Charities/Donations-and-Tax-Deductions/

Jain, S. (2017). Customer Insights for Insurance Companies. In Business Analytics: Progress on Applications in Asia Pacific. Singapore: World Scientific. Retrieved September 24, 2018, from https://www.worldscientific.com/doi/10.1142/9789813149311_0016

Life Insurance Association Singapore. (2012, December 5). Retrieved September 24, 2018, from Life Insurance Association Singapore: https://www.lia.org.sg/system/files/news/2007/08/NOB_CP(7Dec05).pdf

MSFD. (2018, January 3). Trust and Savings Options for Persons with Disabilities. Retrieved 9 2018, 16, from Ministry of Social and Family Development: https://www.msf.gov.sg/assistance/Pages/Trust-and-Savings-Options-for-Persons-with-Disabilities.aspx

Private Medical Insurance Scheme. (2016, June 12). Retrieved September 18, 2018, from Central Provident Fund Board: https://www.cpf.gov.sg/Members/Schemes/schemes/housing/home-protection-scheme

Singapore Statutes Online. (2017, November 12). Insurance Act. Retrieved September 18, 2018, from Singapore Statutes Online: https://sso.agc.gov.sg/Act/IA1966

Teow, P. (2016, November 8). Life insurance industry helps more individuals meet their protection and investment needs as industry continues to report steady growth in the third quarter of 2016. Retrieved September 9, 2018, from Life Insurance Association of Singapore (LIA): https://www.lia.org.sg/node/118891