- Income protection
- Family security protection
- Health care planning
- Mortgage/ Debt cancellation
Case study
Jason, age 47 is an engineer who earns RM300,000 per annum. His wife Linda age 42 is an admin manager of an international firm earning RM100,000 per annum. They have 3 children age 13, 11 and 9. Jason parents is staying with them and so that they can take care of their children. They owned a double story linked house worth RM600,000 at Bandar Utama with a mortgage loan of RM200,000. They have two cars, one BMW driven by Jason worth RM300,000 with an outstand loan of RM200,000 and a Honda Accord driven by the wife worth RM120,000 with an outstanding loan of RM70,000. The monthly family expenses amount to RM10,000 excluding installment repayments. Currently, Jason is covered with RM500,000 critical illness whole life plan and RM1 million term insurance. They have goals to send their children to overseas for further education. Their goal is to provide an education fund of RM150,000 each for their three children. They love to go for vacation overseas once in every two years. Both are contributing to the EPF, their total contributions and savings amount to RM600,000. They want to keep the house in the event of their demise.
Task: to work out a plan to protect family security
Monthly Expenses
- Housing loan RM 1,541.60 (Based on interest 7%pa & 20 years term loan, loan 200k)
- Family RM10,000.00
- Car RM 5,249.60 (BMW, based on interest 2%pa & 5 years term loan, full loan)
- Car RM 2,099.80 (H.Accord, based on interest 2%pa & 5 years term loan, full loan)
- Holiday RM 2,000.00 (Assume that a family trip is done in every 2 years)
Assumptions: Jason and his wife change their cars every five years; Jason owns RM400,000 from the total of RM600,000 EPF and savings amount.
Total monthly expenses = RM20,891.00
Total annual expenses = RM250,692.00
In order to maintain family living standard & also to secure education fund until the youngest child reach age 21, Jason has to secure his life for the coming 12 years.
Total expenses for 12 years = RM3,008,304.00
Education fund for 3 children = RM450,000.00
In the event of Jason's demise, his wife is still working.
Offset from Jason's wife earning for 12 years = RM100,000 x 12 = RM1,200,000.00
Jason's existing coverage + savings = RM1,500,000.00 + RM400,000.00 = RM1.9m
Shortfall of Jason's coverage = RM3m +RM450k - RM1.2m - RM1.9m = RM350,000.00
If Jason is living well until his youngest son reach age 21, their education fund will be funded by his EPF.
Each RM150,000 education fund after 6% inflation adjusted
Child (age 9) RM301,829.00
Child (age 11) RM268,627.00
Child (age13) RM239,077.00
Assume Jason put his money in an investment vehicle which will generate 4% interest pa.
Shortfall of fund needed + RM400,000 = RM188,522 + RM181,474 + RM174,691 (on 4% discount)
Amount short = RM144,687.00
Jason needs to save another RM144,687 now for his children education fund if he is living well for this upcoming 12 years.
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