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Instructions

1. Submit your solution document in the form of a single MS Word file on or before the

cut-off date shown above.

2. You will need to indicate clearly on the front page your name, student ID, course title

and assignment number.

3. The websites will help facilitate your research. However, you will be penalized if

you simply cut & paste information from these websites in your assignment

___________________________________________________________________________

This TMA assesses the student’s ability to:

• Describe the concept of time value of money.

• Translate key elements in their investment portfolio and retirement plan.

• Indicate the differences between various investment instruments and insurance plans

and decide on what is most suitable.

CASE STUDY

The information provided in this case study will be used at various parts of this TMA.

Belle Lim

Divorced, Aged 42

INTRODUCTION

Belle, a Singaporean, was married to Sherlock. Together, they have two children Kenji and

Karen aged 16 and 14 respectively.

EMPLOYMENT

Belle is a Marketing Director with a multinational corporation and in the course of her work

travels one and a half weeks of every month

INCOME AND EXPENSES

The following represents the inflow and outflow figures for Family the period 1.1.2013 to

31.12.2013 :-

Summary of Annual Inflows	Total
Annual Salary (including Bonus and Employee’s CPF)	$150,000
Employer’s CPF contribution	$13,600
Interest from Savings	$210
Interest from Fixed Deposit	$1,100

The total family expenses incurred by Belle is shown below:

Savings	$6,000.00
Fixed Outflows
CPF for house mortgage*	$??,???.??
Cash for house mortgage*	$??,???.??
Car loan repayment	$0.00
Insurance premium	$17,963.00
Variable Outflows
Tax	$4,500.00
Food	$7,200.00
Transportation	$5,400.00
Grooming	$1,200.00
Entertainment/Vacation	$5,000.00
Medical/Dental	$2,400.00
Utilities/Household	$6,600.00
Gifts	$2,500.00
Parental Support	$12,000.00
Miscellaneous	$4,500.00

(*Amounts used from CPF and Cash to pay for the house mortgages are not given.)

ASSETS AND LIABILITIES

The following information pertains to assets and liabilities for the family as at 31.12.2013 :-

1. Belle’s CPF balances in her Ordinary, Special and Medisave accounts amounts to a

$121,000, $25,000 and $35,000 respectively.

2. With investments, Belle is risk adverse. 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, she holds about $60,000 in a savings account, and $110,000 in a oneyear

fixed deposit. Current interest rates applicable to both accounts are 0.35% and

1.00% respectively.

3. Belle does not have any investments in stocks and shares, or in unit trust.

4. The house that Belle is now living in with her children was purchased 7 years ago

with her then husband, Sherlock. The purchase price was $1,300,000, and the couple

paid $500,000 in cash and CPF, and took up a loan for the balance. As at 31

December 2013,

 the house was valued at $1,700,000

 outstanding balance on the loan was $605,230

 The interest rate on the 25 year loan has remained unchanged at 1.5% per annum,

monthly rest, resulting in a monthly instalment of $3,199. Belle 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, Belle charged $6,500 to her

credit card. She has yet to repay the credit card company.

6. Belle does not own a car.

OTHER INFORMATION

1. Belle was legally divorced from Sherlock 4 years ago. Terms of the divorce included:

a. Sherlock giving up custody of the two children without alimony

b. Sherlock giving up legal rights to their matrimonial home. Belle continues with

the mortgage installments on the home

________________________________________________

1 The student will need to check with the relevant website what the contribution level for CPF

Ordinary Account will be.

2. Kenji has been giving tuition to group of 6 Primary School students at a rate of $15

per student per hour. His classes are 2 hours per session, and he conducts sessions

separately for English, Maths and Science (a total of three sessions per week). He

teaches from January to mid-November (excluding June), giving a grand total of 42

weeks of classes.

3. Belle recently detected lumps on her breast. She has made an appointment with an

Oncologist.

4. Every month, Belle given a total allowance $1,000 to her parents for their expenses.

5. Family Survival Needs

Belle aims to provide for her familty until her youngest child is 26 years old.

Belle has put in place a mortgage reducing term insurance to cover for a value of

$760,000 for the next 18 years 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 $3,359p.a.

Having discovered her breast lumps, Belle decides 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 $14,604 each year. For fear of being uninsurable, she does not reveal in the

medical questionaire in the insurance application forms that she discovered breast

lumps and is awaiting a medical examination. Her policy has been approved by the

insurer.

About 8 years ago, Belle bought a $150,000 5-year limited-pay whole life plan. The

plan covers her for $50,000 Critical Illness. The annual premium for her plan was

$19,500p.a. .The Cash Value of her plan is $48,750.

6. Education Needs

Belle would like to prepare for the eventuality that Kenji and Karen to go to

University at ages 21 and 19 respectively. Having been given the opportunity to study

in Australia herself, Belle would like to give her children the “rewarding experience”

of studying overseas. She expects that a year’s tuition and accommodation would cost

about S$25,000 today. From a recent magazine article on overseas education, Belle

agrees that the inflation rate is about 6%. She is prepared to finance a 4-year course

for each of her children.

7. Belle’s recent discovery of breast lumps Belle has caused her to reflect on the matter

of final expenses. Having done some research, Belle would like to provide for the

following final expenses :-

Funeral Expenses	$20,000
Probate Costs	$38,298

8. Belle has also been advised to keep aside for Emergency expenses an amount equal to

3 times her current monthly gross income. This will allow her children to have some

immediate money to live on in the event of her demise until such a time her estate is

executed.

Question 1 (20 marks)

Prepare just for Belle the following:

(a) Cash Flow Statement for the period 1 Jan 2013 to 31 December 2013.

(10 marks)

(b) Net Worth Statement as at 31 December 2013.

(10 marks)

Question 2 (38 marks)

(a) Using the information given in the case study above, determine Belle’s

insurance requirement using the CPF Insurance Estimator found at

https://www.cpf.gov.sg/cpf_trans/ssl/financial_model/insurance_estimator/ie

1.asp

Assume in your study that under Dependant’s Needs:

i. Household expenses (including Parental Support) will be reduced by 30% in the

event of Belle’s death. Round down the result to the nearest whole number.

ii. Expected returns and Inflation are 2% and 3.5% respectively

In your answer, insert a detailed printout of your results – all the headings and their items must

be shown (a sample is shown below)

(18 marks)

(b) Insurance is an important risk management tool for personal financial

planning, and insurers need to be able to make a proper and unbiased

evaluation of the risk they underwrite. To do this, insurers depend on the

principle of Uberrimae Fidei. Please read the two references given below:

1. Your Guide to Life Insurance found with The Life Insurance

Association (LIA) at

http://www.lia.org.sg/files/document_holder/Consumer_Guides/YGTLI_Eng%28Oct07%

29.pdf,

2. Section 25 (5) of the Life Insurance Act (Chap 142)

“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. What is meant by Uberimmae Fidei, especially in the context of insurance

contracts? Refer to Investopedia.

(6 marks)

ii. Why is Uberrimae Fidei important to the underwriting and issuing of contracts of

insurance? What will be the impact of non-disclosure of material facts.

(6 marks)

iii. If Belle were to die of cancer, comment on which of Belle’s insurance policies

will be paid out, and if not, why not. (8 marks)

Question 3 (20 marks)

(a) Belle would like advice on how she can contribute to SRS in 2014. How and in what

amount can she contribute towards Supplementary Retirement Scheme (SRS) Contribution,

when would she would be able to claim relief for the contribution. Give her your advice

with reasons.

(10 marks)

(b) From the SRS Booklet (dated 18 February 2011) downloaded from the Ministry of Finance

website, what type of investments are allowed under the SRS.

(5 marks)

Year of Assessment 2014? Show working to justify your answers.

(5 marks)

Question 4 (22 marks)

(a) Discuss with Belle how she will be able to give her assets to her family (including her parents)

in the event she passes on.

(10 marks)

(b) In the event that Belle passes on without making any formal arrangement (as discussed in (a)

above) to pass on her estate, how will her estate then be distributed. Explain with relevant

references.

(12 marks)