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Financial advisory
RES5Financial Advisory Services✓Mrs. Devi, a homemaker, would need family maintenance income of S$2,500 per month for 18 years if her husband became totally and permanently disabled. Funds are expected to earn 5% while inflation runs at 2%. The Present Value of Annuity Due factor for 18 years is 14.9920 at 3% and 13.7535 at 4%. Her husband has existing TPD-benefit cover of S$120,000 and available savings of S$30,000. What additional TPD benefit is required?
Inflation-adjusted return = 5% - 2% = 3%, so use the 3% factor 14.9920. Yearly income = S$2,500 x 12 = S$30,000. Capital = S$30,000 x 14.9920 = S$449,760. Less existing TPD cover and savings (S$120,000 + S$30,000 = S$150,000) = S$299,760 additional TPD benefit.
S$449,760 omits all deductions; S$329,760 deducts only the insurance; S$419,760 deducts only the savings. Using the 4% factor is wrong — the real return is 3%.
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