PVS (Prashant V Shah)

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    Tax Planning and Estate Planning

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Archive for the ‘Insurance Planning’ Category

This module would cover the knowledge requirements relating to insurance and risk analysis for a CFP certification. It introduces students to risk analysis and insurance decisions in personal Financial Planning. Planning for clients’ exposures to mortality, health, disability, property, liability, and long term care risk is emphasized.
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Practice questions Insurance Planning – CFP

Posted by Prashant Shah on July 25, 2015

Dear all, here are some more questions to practice for insurance, suggested by readers of this blog.

1.

A Client has a 20-year moneyback policy with Sum Assured of Rs. 200000, Premium per annum 13,672. 20% will be paid to the policyholder at the end of the 5th year, 10th and the 15th year and 40% for the 20th year. The client has received the 3rd moneyback. You estimate the gross returns presently in the policy considering reversionary bonus of Rs. 50/1000 Sum Assured. You compare the cost benefit if the client pays all premiums & survives the policy & also gets Rs. 150/1000 Sum Assured as loyalty Bonus. You conclude that ______

  1. The additional inflow on 5 future premiums less opportunity cost would be 12% return
  2. The additional inflow on 5 future premiums less opportunity cost would be more than 19% return
  3. The additional inflow on 5 future premiums less opportunity cost would be 30% returns or more
  4. The overall return improves marginally by 1.15% p.a.

 

2.

A family spends 35000 pm. There is a loan outstanding of 42 lakhs. The client’s son wants to study abroad after 5 years and 50 lakhs is the cost against which he has a saving of 27 lakhs. Find Inflation adjusted life cover for replacing the client, for 5 years of family expense & such life expenses @ 40% for souse’s 30 years survival. Inflation is 5.5% and Return is 9.5%

  1. 109 Lakhs
  2. 101 Lakhs
  3. 106 Lakhs
  4. 91 Lakhs

3.

A client has a cash asset of 70 Lakhs, a housing loan of 52 lakhs. 6 years hence wants 1 cr to set up child business and 10 years hence wants 50 Lakh for daughter’s marriage. What is the life cover required? Inflation adjusted monthly expense 50000 now for his family & that of the spouse 35 years survival continuing after 10 years. Inflation is 7% & investment rate is 11%

  1. 220 Lakh
  2. 299 Lakh
  3. 144 Lakh
  4. 162 Lakh

4.

A client has a car loan of 10 lakhs with an EMI of 21494/m @ 10.5% and 2 years left for the loan. He also has a personal loan of 3.2 lakhs with an EMI of 11569/m @ 18% and 2 years left. He receives a sudden inflow of 4 lakhs which he can put in 10% FD for 2 years. Will you advice to repay the loan & invest the EMI systematically every month in a tax efficient instrument @ 9%?

  1. Yes the accumulated amount after 2 years would be more by atleast 20,000 with lower tax than FD
  2. No, FD maturity will be 8,47,000 against total outflow of 7,93,500 in 2 years in loan
  3. No the FD interest would be 1,47,000 where as he may save 98,000 in interest
  4. Not nice to leave 10% for 9%
  • FV OF FD
  • PV = 4,00,000
  • N = 2
  • I/Y = 10
  • FV1 = 4,84,000
  • INVESTMENT OF SURPLUS AMOUNT
  • FIND PV OF CAR LOAN
  • FIND PV OF PERSONAL LOAN
  • REPAY PERSONAL LOAN AND USE REMAINING AMOUNT TO PAY CAR LOAN
  • FIND PMT FOR REMAINING CAR LOAN
  • AMOUNT OF INVESTMENT = 21494 +11569 – NEW CAR LOAN PMT
  • FINAL ACCUMULATION:
  • PMT = AMT OF INVESTMENT
  • N = 24
  • I/Y = MNR OF 9%
  • FV2 = ?
  • INCREASE IN WEALTH = FV2 – 484000

Posted in CFP, Insurance Planning | 22 Comments »

Important Questions Insurance Planning CFP

Posted by Prashant Shah on March 27, 2014

Following Questions have been suggested by one of the reader as important for CFP exam. I don’t own any of the question. Suggest modifications in the questions if any.

Q1. A bunglow was constructed at a cost of rs 2crore in 2006 and a further Rs1crore was spent over on furnishing in 2008.the bunglow is valued at Rs12 crore in 2012.the costs of construction and furnishing have escalated rate 10% and 15% respectively over the period.the owner wants to totally absolve himself of any expences,in case bunglow is razed down due to some peril. what value would you advise the owner to insure the property?

A) 5.34 Crore.

B)3.50 crore.

C)5.90 crore.

D)5.29 crore.

 

Q2. A client’s 20 year money back policy of sum assured rs 2 lakh has annual premium of rs 13672, Policy pays back 20% of s.a after each of first three 5-years survival periods and another 40% of s.a on surviving full term. The client has received the third money back. You estimate the gross returns presently in the policy considering reversionary bonus of rs 50 per thousands s.a. you compare the cost benefit if the client pays all premiums and survives the policy and also gets rs 150 per thousand s.a as loyalty bonus. you conclude that _________.

a)the overall return improves marginally by 1.15% p.a

b)the additional in flow on 5 future premiums would amount to over 19% p.a returns

c) the additional in flow on 5 future premiums would amount to nearly 30% p.a returns

d) the additional in flow on 5 future premiums less opportunity cost would amount to nearly 12%

Solution: Suggestions invited for correction

 

CF-BGN CF-BGN
1 -13672 1 -13672
2 -13672 2 -13672
3 -13672 3 -13672
4 -13672 4 -13672
5 -13672 5 -13672
6 26328 6 26328
7 -13672 7 -13672
8 -13672 8 -13672
9 -13672 9 -13672
10 -13672 10 -13672
11 26328 11 26328
12 -13672 12 -13672
13 -13672 13 -13672
14 -13672 14 -13672
15 -13672 15 -13672
16 190000 16 26328
IRR 4.80% 17 -13672
18 -13672
19 -13672
20 -13672
21 310000
IRR 5.95%

Q3. Mr. A has gross annual salary of 9 lakh of which he saves 30% which include statutory EPF deduction, PPF and monthly systematic investment in long term MF scheme. Another 30% goes toward servicing of household & car loan & taxes. His financial planner advice him to accumulate 6 months household expense in liquid fund. HE change job and expect immediate rise of 20% in his gross income .You estimate that other heads would not change materially except his household expense which would rise by 5% due child education. How many months will it take to accumulate liquidreserve?

a.25months

b.11months

c.14months

d. 13 months

Solution: Same question in Investment Planning

900000 INCOME 1080000
270000 EPF 270000
270000 LOAN 270000
360000 HOUSEHOLD 378000
SAVINGS 162000
REQUIREMENT 189000
SAVINGS PA 162000
YEAR 1.166666667
MONTHS 14

 

Q4. An industrialist started a project on 1st nov 2009 with own capital of rs 1crore. He arranged a project of rs 1.5crore by a back on 1st july 2009 at a rate of 12%p.a. the terms of finance were quarterly invested.only payments up to six quarter and the repayment of premium in three equal installments from the end of seven quarter along with interest on the loan outstanding.he infuced fresh own funds towards working capital of rs 20 lakh on 7th december 2009 and rs 30 lakh on 4th november 2010.the project completed with a profit of rs 4.5crore on 6th september 2012.find the return generated by the project…

a)22.59%p.a.

b)30.16%p.a.

c)30.57%p.a.

d)32.37%p.a.

 

Q5. A company in the business of warehousing.in 2012,insured its warehouse premises also calamity for a value of rs 1.65cr towards liability coverage,separate insurance towards clients for rs 15cr each were taken to cover the goods kept at any time.the company has cover of rs 10cr also.the warehouse was completely destroyed in fire.the registered amount of rs 30cr.what insurance can be setteled in the company’s claim?

a)rs 1.65 cr to the company and rs 30cr towards liablity to clients.

b) nil to the company and rs 26.65cr towards liablity to clients.

c) rs 1.65 cr to the company and rs 17.5cr towards liablity to clients.

d) rs 1.65cr to the company and rs 25cr towards liability to clients.

 

Q6. CD is promissory note issued by Bank and Financial Institute. That is part of?

A) CRR only

B) Both CRR and SLR

C) Neither CRR nor SLR

D) SLR only

 

Q7. Car comprehensive loan is 1.5 lakh. Deducted 5000 from insurance. The car is damaged for an amount of 60 k with 10k accessories he forgets to declare it. Insurance he gets 30k. What will be the claim he will get.

a) 50k, and 5 k

b) 45k and 15k

c) 50 k and 10k

d) 45 k and 10k

 

Posted in CFP, Insurance Planning | 67 Comments »