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The following information pertains to assets and liabilities for the family as at 31.12.2014
1. Laura’s CPF balances in her Ordinary, Special and Medisave accounts amount to a $122,000, $24,000 and $40,000 respectively.
2. With investments, Laura is risk averse. This is because she made huge losses during the last global financial crisis, having been advised to invest in structured deposits. As a result of this loss, she holds about $90,000 in a savings account, and $120,000 in a one-year fixed deposit. Current interest rates applicable to both accounts are 0.35% and 1.18% respectively.
3. Laura does not have any investments in stocks and shares, or in unit trust.
4. The house that Laura is now living in with her children was purchased 6 years ago in her own name. The purchase price was $1,080,000, and the couple paid $196,000 in cash and CPF, and took up a loan for the balance. As at 31 December 2014,
• the house was valued at $709,000
• outstanding balance on the loan was $719,429
• the interest rate on the 25 year loan has remained unchanged at 1.8% per annum,monthly rest, resulting in a monthly instalment of $3,728. Laura uses all their monthly CPF Ordinary Account contribution1 to pay for the instalment, and tops up the balance with cash.
5. During a recent holiday to Europe with her children, Laura charged $8,000 to her
credit card. She has yet to repay the credit card company.
6. Laura does not own a car.
1 The student will need to check with the relevant website what the contribution level for CPF
Ordinary Account will be.
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1. Laura’s husband, Harry, recently passed away leaving total assets valued at $600,000 and CPF monies of $150,000. He did not make a will before his demise, and he nominated his mother as the beneficiary for his CPF monies before he was married to Laura 22 years ago. His Estate has not been settled.
2. Lynn has been giving tuition to group of 3 (three) Primary School students at a rate of $12 per student per hour. Each class is 2 hours per session, and she conducts sessions separately for English, Maths and Science (a total of three sessions per week). She teaches from January to mid- May giving a grand total of 18 weeks of classes.
3. Laura recently detected lumps on her breast 6 months ago. She has made an appointment to see an Oncologist in March 2015.
4. Every month, Laura gives a total allowance of $1,500 to her parents for their expenses.
5. Laura plans to retire at age 62 and her life expectancy is 82 years. She assumes that the expected rate of return and inflation are 3.5% and 2.5% respectively.
6. Family Survival Needs
a. Laura aims to provide for her family until her youngest child is 26 years old.
b. Laura has put in place a mortgage reducing term insurance to cover for a value of $900,000 at a discount rate of 2% p.a. (feature of the policy is that it pays the outstanding balance of the loan at the time of the claim). Her mortgage is also paid for in the event of Critical Illness or Total and Permanent Disability. Premium for
the mortgage protection plan is $3,509 p.a.
c. Having discovered her breast lumps, Laura decides in November 2014 to quickly buy a $1,500,000 Term plan with $600,000 Critical Illness benefits to provide for her children in the event she contracts and/or dies from cancer. Her term plan which covers her until age 99 costs her $14,454 each year. For fear of being uninsurable, she does not reveal in the medical questionnaire in the insurance application forms that she discovered breast lumps and is awaiting a medical examination. Her policy has been approved by the insurer.
d. About 9 years ago, Laura bought a $100,000 5-year limited-pay whole life plan from Eligible Insurance Company. The plan covers her for $60,000 Critical Illness. The annual premium for her plan was $20,500p.a. The Cash Value of her plan is $55,360.
Prepare for Laura the following
(a) Cash Flow Statement for the period 1 Jan 2014 to 31 December 2014 (From the facts given in the case study and some of your own research, determine the missing figures for Interest from Savings and Fixed Deposit, as well as the portion of CPF and Cash used for the housing instalment)
(b) Balance Sheet as at 31 December 2014
(a) With the recent demise of Harry, Laura is worried about her retirement needs and she decides to start planning for her retirement. Her desired monthly retirement income is $4,500. Using the information given in the case study, you are to determine the lump sum Laura needs to have when she retires at age 62 by using the CPF Retirement Estimator found at www.cpf.gov.sg “Retirement Planning – Retirement Estimator” using the 2nd option. In your answer, insert a detailed printout of your results.
(b) While clearing Harry’s belonging, Laura found the bank loan document. Please read the
reference given at CPF website at www.cpf.gov.sg
“Retirement Planning –RetirementReady.sg -Business Centre – Housing -Financial Aspects of Housing – Mortgage Loan Basics – Loan Repayment Period”
“Retirement Planning -–RetirementReady.sg -Business Centre –Housing -Your common Housing Questions Answered – Refinancing and Negative”,
Explain what will happen if
i. Laura switches from monthly rest interest rate computation to an annual rest interest
ii. Laura decides to refinance her property now (ie negative equity)
“No Singapore insurer shall use, in the course of carrying on insurance business in Singapore, a form of proposal which does not have prominently displayed therein a warning that if a proposer does not fully and faithfully give the facts as he knows them or ought to know them, he may receive nothing from the policy.”
i. Explain the principle of Utmost Good Faith (Uberrina Fides) in relation to Insurance contracts. What happens when this principle is breached?
ii. Which policies will pay out, and how much will be paid, if Laura were to
a) contract a major illness? (6 marks)
b) (1 year after contracting a major illness) pass away?
(a) What is the criteria for qualifying for Working Mother Child Relief (WMCR) and how much will Laura qualify for?
(b) The SRS is a voluntary scheme for retirement purposes. How will Laura be able to withdraw her SRS money when she retires? Explain with regards to withdrawal and taxation
(c) Laura’s Parenthood Tax Rebate stands at $6,200 at 31 December 2014. Assuming that Laura’s 2014 income results in a tax payable of $4,180, what amount of tax will she have to pay for the Year of Assessment 2015? What happens to her Parenthood Tax Rebate after her tax is paid?
(d) Who will inherit Harry’s estate? What should Harry have done if he had wanted to give all his assets to his spouse?
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