Wealth grounding and Wealth accumulation

SECTION 1: COURSE GUIDE
1.1 Introduction………………………………………………………………………………………1
1.2 Course Description and Aims……………………………………………………………2
1.3 Learning Outcomes …………………………………………………………………………..3
1.4 Overall Assessment …………………………………………………………………………..4
1.5 Learning Materials…………………………………………………………………………….5
SECTION 2: STUDY UNITS
STUDY UNIT 1: Principles of Personal Financial Planning: Benefits and
Process
Learning Outcomes ····················································································SU1-1
Overview ····································································································SU1-2
Review Questions ······················································································ SU1-2
Answers to Review Questions ·································································SU1-4
STUDY UNIT 2: Wealth Generating and Growth: Cash, Investment and
Retirement Planning
Learning Outcomes ····················································································SU2-1
Overview·····································································································SU2-2
Review Questions ·······················································································SU2-3
Answers to Review Questions ··································································SU2-4
STUDY UNIT 3: Wealth Guarding and Wealth Giving: Insurance, Estate and
Tax Planning
Learning Outcomes ··················································································· SU3-1
Overview ····································································································SU3-2
Review Questions ·······················································································SU3-3
Answers to Review Questions ··································································SU3-4
COR167
Managing Your Personal Finances
COURSE GUIDE
COR167 COURSE GUIDE
1
SECTION 1: COURSE GUIDE
1.1 Introduction
Overview
(Access video via iStudyGuide)
Welcome to your study of COR167 Managing Your Personal Finances, a 2.5 credit
unit (CU) course.
This Study Guide is divided into two sections – the Course Guide and Study Units.
The Course Guide provides a structure for the entire course. As the phrase implies,
the Course Guide aims to guide you through the learning experience. In other
words, it may be seen as a roadmap through which you are introduced to the
different topics within the broader subject. This Guide has been prepared to help
you understand the aim[s] and learning outcomes of the course. In addition, it
explains how the various materials and resources are organised and how they may
be used, how your learning will be assessed, and how to get help if you need it.
Course Schedule
To help monitor your study progress, you should pay special attention to your
Course Schedule. It contains study unit related activities including Assignment,
self-evaluations, and examinations. Please refer to the Course Timetable in the
Student Portal for the updated Course Schedule.
NOTE: You should always make it a point to check the Student Portal for any
announcements and latest updates.
You need to ensure you fully understand the contents of each Study Unit listed in the
Course Schedule. You are expected to complete the suggested activities either
independently and/or in groups. It is imperative that you read through your
Assignment questions and submission instructions before embarking on your
Assignment. It is also important you comprehend the Overall Assessment
Weighting of your course. This is listed in Section 1.4 of this Guide.
Manage your time well so you can meet given deadlines and do regular revisions
after completing each unit of study. They will help you retain the knowledge
garnered and prepare you for any required formal assessment. If your course
requires an end-of-semester examination, do look through the Specimen or Past
Year Exam Paper which is available on Learning Management System.
Although flexible learning – learning at your own pace, space and time – is a
hallmark at SUSS, you are encouraged to engage your instructor and fellow students
in online discussion forums. A sharing of ideas through meaningful debates will
help broaden your learning and crystallise your thinking.
COR167 COURSE GUIDE
2
1.2 Course Description and Aims
Financial planning helps us achieve our financial goals and long-term financial
well-being.
Recent studies reveal that the large majority of Singaporeans have not done any
form of planning for their future. They assume that their CPF savings will provide
adequate income for their retirement. It is now known that this is not the case, and
the problem is compounded by a longer life span.
Managing Your Personal Finances is a financial journey of meeting individual life
goals through the proper management of an individual’s wealth. It is also a process
that consists of specific steps that will help an individual to ascertain his/her financial
health. The detailed process involves gathering relevant financial information, setting
financial goals, examining current financial status and coming up with a strategy to
meet the current situation and future plans and regularly reviews the plans.
The learning objectives of this course are:
1. That the students understand the importance of personal financial planning.
2. That they are able to use the six-step process of personal financial planning.
3. That they are able to apply their knowledge in an integrated project of cash
management, investment planning, insurance planning, retirement planning,
tax planning, and estate planning.
By viewing each financial decision as part of a whole, students can consider the
short and long-term effects on their life goals. They can then take effective actions
for their financial well-being.
COR167 COURSE GUIDE
3
1.3 Learning Outcomes
Knowledge & Understanding (Theory Component)
At the end of the course, students should be able to:
 Outline their financial goals
 Demonstrate the ability to assess personal financial health using financial ratios
 Describe the concept of time value of money
 Demonstrate Wealth Growing Process through Investment Planning
Key Skills (Practical Component)
By the end of this course, students should be able to:
 Interpret the concept of time value of money
 Demonstrate the critical aspects of Wealth Guarding through Insurance
Planning
 Develop the key elements in Wealth Growing through Investment Planning
and for Retirement
 Use key aspects of Wealth Guarding through Tax Planning and Estate Planning
COR167 COURSE GUIDE
4
1.4 Overall Assessment
The overall assessment weighting for this course is as follows:
Assessment Description Weight Allocation
Assignment 1 Pre-class online quiz 20%
Assignment 2 This TMA comprises an individual
written assignment with self financial
health assessment exercise and
accessing personal financial portals.
40%
Assignment 3 This TMA comprises an individual
written assignment, with analysis of
an integrated case study on personal
financial planning.
40%
TOTAL 100%
The assessment strategy consists of three (3) components that make up the overall
course assessment score. Each component is not equally weighted.
Your overall rank score is the weighted average of all the three assignments.
All assignments and attendance are compulsory. If you fail to submit an
assignment by the stipulated deadline (including the automatic mark-deduction
period for TMAs), you will be deemed to have withdrawn from the course, and will
receive a ‘W’ for the course.
The pre-class Online Quiz constitutes 20% of the Overall Continuous Assessment
(OCAS) score.
Important Note
The pre-class Online Quiz must to be completed ahead of the first face-to-face
session.
The minimum passing mark is 60%.
Three attempts are allowed up to the closing deadline of the pre-class Online Quiz.
If you fail to meet the minimum passing mark for the pre-class Online Quiz, or if you
fail to attempt the pre-class Online Quiz by the stipulated deadline, you will be
deemed to have withdrawn from the course, and will receive a ‘W’ for the course.
COR167 COURSE GUIDE
5
1.5 Learning Materials
The following is a list of the required learning materials to complete this course.
Required Textbook
Author
Last name, First
name
Title Year Publisher
Chan, Patrick Managing Your Personal Finances
(2nd Edition)
2010 McGrawHill
COR167
Managing Your Personal Finances
STUDY UNIT 1
Principles of Personal
Financial Planning:
Benefits and Process
COR167 STUDY UNIT 1
SU1-1
STUDY UNIT 1
Principles of Personal Financial Planning: Benefits and
Process
CHAPTERS 1, 2, 4-6 Patrick Chan, Managing Your Personal Finances, McGraw-Hill,
2010
LEARNING OUTCOMES
This study unit aims to provide students with an introduction to the importance of
financial planning, its benefits and the process.
At the end of this study topic, students will be able to:
1) Describe the benefits and process of financial planning.
2) Recognise financial needs for different phases of a human life cycle.
3) List the 3 key components and objectives of personal financial planning: 5G
Road Map to Financial Freedom
a. Wealth Grounding
b. Wealth Generating
c. Wealth Guarding
d. Wealth Growing
e. Wealth Giving
4) Describe the roles and responsibilities of regulatory bodies, professional
bodies and key financial institutions of the financial services industry in
Singapore.
5) Describe the factors affecting financial goals setting.
6) List the six stages of the financial planning process:
a. Establishment of financial planning goals
b. Fact finding
c. Data analysis
d. Plan development
e. Plan implementation
f. Monitoring and revision
7) Define the different levels of wealth (financial stability, financial security
and financial independence).
8) Outline cash management plans such as saving and passive income.
9) Evaluate personal financial statements such as balance sheet, cash flow
(income and expenditure) statement and budget.
10) Analyse costs of Borrowing such as types of debts, loan interest and
amortisations calculations and strategies to manage personal debt.This Study Unit lays the foundation to ground an individual’s effort to build and
manage his/her own personal finance.
This is the basis of personal financial and wealth management to help calibrate the
individual’s financial personality and goals.
Students will have an overview of the keys to financial success, and how these can
be achieved systematically.
The key to this is to gain knowledge of what and how personal financial planning
can form the backbone of achieving financial goals and arriving at desired lifestyle
in the optimum manner.
This unit will also provide students with a perspective of the processes involved in
personal financial planning (5G Roadmap to Financial Freedom).
It involves working through the basic objectives of Wealth Grounding, mindset
change and articulating financial objectives in order to put into action the
attainment of these goals.
Finally, students will be empowered with a range of skills and tools to assess and
determine personal financial health. This helps the individual to set the premise for
quantifying his/her financial resources for the purpose of realising financial goals.
Overview of Personal Financial Planning
Stages of Financial Planning
(Access videos via iStudyGuide)
====================================================================
REVIEW QUESTIONS
Attempt Questions 1-4.
Question 1
Briefly explain why it is necessary to construct a set of personal financial statements,
particularly the Balance sheet and the Cash Flow statement.
COR167 STUDY UNIT 1
SU1-3
Question 2
What are the potential problems that can be encountered when preparing the
personal financial statements?
Question 3
John and Serene Yeo are a couple in their late 30s. Both of them have a combined
income of $160 000 (net income after deduction for CPF and tax is $100 000). They
live in a HDB 5-room flat in Jurong West and are considering purchasing a
condominium next year. They have three children of 5, 7 and 9 years old
respectively.
They have a mortgage loan of $230 000 that has to be paid over 25 years. The
monthly mortgage repayment is $1 600 serviced through their CPF. They also own
a Nisan Camry worth $65 000 financed by a car loan of $40 000. Monthly repayment
over seven years is $580. Other monthly household expenses amount to $7 000.
Both of them save about $800 a month.
John and Serene Yeo’s Balance Sheet as at 31st December 2009
Cash / near cash $30 000
Home mortgage loan $230 000
Unit trusts $60 000
Car Loan $40 000
Market value of HDB flat $530 000
Other debts $60 000
Fair value of car $55 000
Other assets $15 000
Total Assets $690 000
Total Liabilities $330 000
a) Compute the net worth of John and Serene Yeo.
b) Compute the following ratios and interpret the results of the computed
ratios.
(i) Basic Liquidity ratio
(ii) Liquid assets to net worth ratios
(iii) Savings ratio
(iv) Debt to asset ratio
(v) Debt service ratio
(vi) Net investment ratio to net worth ratio
c) Based on the above computed ratios, what advice would you offer to the
couple?
COR167 STUDY UNIT 1
SU1-4
Question 4
Prepare a balance sheet for Mr Simon Lee and his family as at 31
st December 2009
from the information you have gathered:
 He owns a semi detach that he lives in. He bought this property three years
ago for $1.8 million. Recently, a professional valuer valued the house at $1.1
million. The mortgage on the property is $650 000.
 He and his wife have a joint fixed deposit account of $30 000. They also have
a combined CPF savings of $25 000.
 He bought several technology shares at $69 000 when such shares were ‘hot
items’. These shares are now valued at $45 000. He also has unit trusts
valued at $25 000.
 The family owns a BMW for which he bought at $160 000 three years ago.
This model is known to have a depreciation value of $20 000 a year. To pay
for this car, he took up a hire purchase loan and has an outstanding loan of
$45 000.
 At this point in time, he owes his bank an outstanding credit card balance of
$5600.
ANSWERS TO REVIEW QUESTIONS
Question 1
A set of financial statements enables a planner to assess the financial situation at a
point in time to recommended courses of action that will improve financial
situation and over a period to discover if an individual is progressing towards
financial goals.
Question 2
Problems are:
 difficult and time consuming sometimes to compile especially if the
individual does not keep record
 assets may be difficult to value at fair market value and may be expensive if
a professional valuer is deemed needed

Question 3
a) Compute the net worth of John and Serene.
Net worth = $ 690 K – $ 330 K = $360 K
b) Compute the following ratios and interpret the results of the computed
ratios.
(i) Basic Liquidity ratio = 30000 / (1600+580+7000+800) = 3.00 (Minimum
requirement met)
(ii) Liquid assets to net worth ratios = 30000/(360000) = 8.33%
(Inadequate)
(iii) Savings ratio=(800×12)/160 000 = 6% (Inadequate)
(iv) Debt to asset ratio= 330K/690K=47.83% (Below 50% – solvent)
(v) Debt service ratio= 12(1600+580) divided by $100K = 26.16% (Healthy,
below 45%)(May assume ‘other debts’ of $60k require no monthly
repayment since no info available, e.g. friendly loan by parents)
(vi) Net investment ratio to net worth ratio = 60 000/360 000 = 16.67%
(Below 50% – Not enough)
c) Advice offered to the couple:
 Advise them to have more savings as the current 6% savings are not
enough.
 Since their debt to asset ratio is below 50%, solvency is OK as long as
they keep their jobs, not likely to be bankrupt. Also, they have
emergency cash liquidity to last them for three months.
 Investment level of 16.67% is not enough especially if they plan to save
up for a retirement nest.
COR167 STUDY UNIT 1
SU1-6
Question 4
Balance Sheet
Mr Simon Lee and family
Balance sheet as at 31 Dec 2009
ASSETS LIABILITIES & NET WORTH
Cash Liabilities
Current account $ – Credit Card balances
Savings account $ – Car Hire purchase
Fixed account $ 30,000.00 Mortgage Loan balance
Total Cash/Cash equivalent $ 30,000.00 Total Liabilities
Invested Assets
Unit trust $ 25,000.00
CPF Savings $ 25,000.00
Shares $ 45,000.00
Total Invested Assets $ 95,000.00
Personal Use Assets Net Worth
Residence $1,100,000.00
Personal Property
Car $ 100,000.00
Total personal use assets $1,200,000.00
TOTAL LIABILITIES
TOTAL ASSETS $1,325,000.00 & NET WORTH
$ 5,600.00
$ 45,000.00
$ 650,000.00
$ 700,600.00
$ 624,400.00
$1,325,000.00

COR167
Managing Your Personal Finances
STUDY UNIT2
Wealth Generating and Growth:
Cash, Investment and
Retirement Planning
COR167 STUDY UNIT 2
SU2-1
STUDY UNIT 2
Wealth Generating and Growth: Cash, Investment and
Retirement Planning
CHAPTERS 9-11 Patrick Chan, Managing Your Personal Finances, McGraw-Hill, 2010
LEARNING OUTCOMES
This study unit aims to provide students with an understanding of wealth
generating through cash management and wealth growing for retirement
through investment planning.
At the end of this study topic, students will be able to:
1) Describe the different investment instruments such as cash, share, bond, unit
trust, financial derivatives, property and others.
2) Demonstrate an understanding of the fundamental concepts of the time
value of money, risk profiling, and investment risk and return.
3) Formulate retirement planning through investment planning.
4) Summarise private and statutory funding methods for retirement that
include investment and retirement fund from Central Provident Fund (CPF);
CPF Life and SRS (Supplementary Retirement Scheme).
5) List the range of CPF schemes for the purpose of investment, protection and
retirement:
a. Property Ownership
b. Retirement Schemes (CPF Life, Minimum Sum Scheme, Enhanced
Minimum Sum Scheme)
c. Family Protection – Home protection insurance and Dependent
protection insurance
d. Asset Enhancement – CPF Investment Scheme (CPFIS)
e. Healthcare Financing – MediSave, MediShield Life and Private
Medical Insurance
6) Explain life annuity, such as immediate annuities, certain and continuous
annuities, refund annuities, reversionary annuities, and investment-linked
annuities.
7) Discuss reverse mortgage and its application in retirement planning.
8) Explain the concept of SRS and its application in retirement planning.
COR167 STUDY UNIT 2
SU2-2
OVERVIEW
This study unit introduces students to the key aspects of the 5Gs Roadmap to
Financial Freedom.
In particular, these key aspects include:
(a) Wealth Generation with Cash Management
(b) Wealth Guarding with Tax Planning and Insurance Planning
(c) Wealth Growth with Investment Plan
(d) Wealth Giving with Retirement Planning and Estate Planning
One key aspect of this unit is the detailing of the Cash Management process, with a
view of working towards positive cash flow. The model of a Monthly Cash Budget
will be deployed for saving and creation of cash reserves.
The topic on Credit Management will cover management of personal debt and the
basic features of different types credit for individuals such as credit cards, overdraft
and loans. Loan interest calculations, loan amortisations and simple strategies to
manage personal debt will also be covered.
Students will be introduced to the concept of Wealth Growing. It will show how
the combined power of time value of money and compound interest can be
fully utilised and leveraged upon in order to create “investable funds”.
The principles of investment strategies will be demonstrated as a viable approach
to deploying “investable funds”.
Key to this is the notion of maximising the returns and minimising the risks of the
“investable funds” through the creation of an investment portfolio involving
different assets classes.
Crucially, a 3-step retirement planning process for Wealth Giving will be
introduced. It debunks the common belief held by many Singaporeans that CPF
savings alone are sufficient for retirement.
Finally, this Study Unit also emphasises the importance of the detailed planning of
both CPF and private savings, and reinforces the notion that the two components
form the backbone of a comprehensive retirement plan.
Cash and Investment Planning
Retirement Planning
(Access videos via iStudyGuide)
====================================================================
COR167 STUDY UNIT 2
SU2-3
REVIEW QUESTIONS
Attempt Questions 1-5.
Question 1
What is the objective of developing a cash management plan?
Question 2
Identify three considerations for having a cash reserve.
Question 3
a) Name and describe the two methods of assessing a person’s retirement
needs.
b) Describe the circumstance under which each of the methods would be
appropriate.
Question 4
Briefly explain the concept of the reverse mortgage.
Question 5
a) Assuming an investment return of 7%, compute the value of an investment
in 25 years currently being valued at $100 000.
b) With a forecasted annual retirement income shortage of $50,000 (in first year
dollars) and an expected average annual investment return of 7%, compute
the lump sum needed at the beginning of retirement. (Assume inflation at
4% and he expects to live another 30 years after his retirement).
c) If the future lump sum value needed at an individual’s retirement of 65
years old is $500,000, compute the annual end-of-year savings that must be
set aside if the individual is 48 years old now. Assume a 7% investment
return and 4% inflation rate.
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COR167 STUDY UNIT 2
SU2-4
ANSWERS TO REVIEW QUESTIONS
Question 1
Objective of Cash Management Plan
The main objective of a Cash Management Plan is to manage an effective Cash Flow
in order to create a cash reserve or residual funds resulting from the surplus (Net
Inflow) of the cash flow.
Question 2
The following considerations emphasise the importance of building a cash reserve:
 Appropriate cash reserve must be at least of 6 months of living expenses.
This amount will at least buffer the cash flow of the family in times of
emergencies or financial hardship resulting from unemployment or
prolonged hospitalisation of breadwinner.
 Sufficient cash reserves to cover unexpected expenses, emergencies or good
investment opportunities, e.g. for job layoff, IPOs.
 Cash reserve must not be held in cash but in liquid assets, i.e. held in
investments that are easily converted into cash with little risk of capital loss
or minimal loss in value. These liquid assets will include bank deposits, e.g.
current accounts that pay interest, savings and Fixed Deposits and money
market funds in the United States.
Question 3
a) Two methods of assessing a person’s retirement needs:
Replacement ratio Method – Based on the assumption that the standard of living
experienced during the years prior to retirement will be the determining factor for
the standard of living during retirement. In general, a 70-90% replacement ratio of
a client’s after tax final salary is used in the retirement planning process.
The Expense method – Focuses on projected expenses during retirement. A longer
term projection and harder to forecast accurately. It considers income and expenses
in retirement and tries to determine savings to meet retirement goals.
b) Describe the circumstance under which each of the method would be
appropriate.
The replacement ratio method – More accurate for clients who are younger and still
have some time away from retirement. Pre-retirement income not needed for
retirement estimation because of change in spending patterns.
Expense method – Suitable for people who are near retirement or at pre-retirement
age. They are able to predict with greater accuracy their expenses needed in their
retirement.
COR167 STUDY UNIT 2
SU2-5
Question 4
Concept of the reverse mortgage is where the property is mortgaged to financial
institution in exchange for the right to receive some cash every month until the owner
passes away. This arrangement enables the owner of the property to access cash that would
otherwise be accessible if the property was sold. The scheme ensures that the policy’s basic
living costs are met. It also could provide for occasional lump sum withdrawals to pay for
medical or travel expenses.
Question 5
a) Assuming an investment return of 7%, compute the value of an investment
in 25 years currently being valued at $100 000. $542,743.26
b) With a forecasted annual retirement income shortage of $50,000 (in first year
dollars) and an expected average annual investment return of 7%, compute
the lump sum needed at the beginning of retirement. (Assume inflation at
4% and he expects to live another 30 years after his retirement). $1,009,422.73
c) If the future lump sum value needed at an individual’s retirement of 65
years old is $500,000, compute the annual end-of-year savings that must be
set aside if the individual is 48 years now. Assume a 7% investment return
and 4% inflation rate. $22,976.26
COR167
Managing Your Personal Finances
STUDY UNIT 3
Wealth Guarding and Wealth Giving:
Insurance, Estate and
Tax Planning
COR167 STUDY UNIT 3
SU3-1
STUDY UNIT 3
Wealth Guarding and Wealth Giving:Insurance, Estate
and Tax Planning
CHAPTERS 7-8 & 12 Patrick Chan, Managing Your Personal Finances, McGraw-Hill,
2010
LEARNING OUTCOMES
This study unit aims to give students an understanding of wealth guarding and
wealth giving through insurance, estate and tax planning.
At the end of this study topic, students will be able to:
1) List the features of the main classes of life insurance products as applied in
wealth guarding.
2) List the features of the traditional life insurance products such as whole life,
term, and endowment insurance.
3) Explain variations to basic policies such as living assurance, modified
anticipated endowment, juvenile policies, and joint life policies.
4) Outline life insurance products such as single premium unit-linked whole
life policies and regular premium unit-linked whole life policies.
5) Outline health insurance such as dread disease cover, hospitalisation benefit,
hospital and surgical benefit, CPF’s Medisave and MediShield and
catastrophic medical insurance.
6) Outline property insurance such as household insurance.
7) Explain estate planning and its main purposes.
8) Summarise estate planning process and duties of financial planners in estate
planning.
9) List the types of trusts and the reasons for creating trusts.
10) List the types of wills and the benefits of having wills.
11) Summarise the fundamentals of personal income taxation based on
Singapore Income Tax Act and issues relating to financial planning.
12) Compare Tax Savings with Personal Tax reliefs and special schemes such as
Supplementary Retirement Scheme (SRS) and CPF Topping-up.
COR167 STUDY UNIT 3
SU3-2
OVERVIEW
This unit focuses on the two certainties in life: Death and Tax. Death is a taboo
subject that is seldom discussed openly. Although the sting of death can be
financially fatal, many people avoid planning for their death when they are alive.
Managing a dead person’s financial affairs can be both messy and massive. Poor
estate planning can be disruptive and can completely derail an individual’s lifetime
of hard work of wealth creation and accumulation.
Likewise, tax is also not an issue that can be talked about casually.
Mismanagement of one’s tax affairs can be costly, as the dividing line between what
is legal (tax avoidance) and criminal (tax evasion) is thin.
This Study Unit will put a finishing touch to the painting of a composite picture of
an effective personal financial plan of wealth generating, guarding and growing by
preserving the fruits of the hard labour of the Wealth Generator either for one’s
enjoyment in the later stage of life or as a legacy for loved ones.
We will consider how Insurance can provide an additional financial shield,
protecting both the Wealth Generator (the person creating the wealth) and the
Wealth Generated (assets or the wealth generated and growing) against destruction
from various perils or financial hardship resulting from life uncertainties such as
premature death, disability or diseases encountered along the financial journey of
wealth creation.
Students will also learn how insurance works as the ideal financial shield for
protection against life uncertainties and destruction from various perils or financial
hardship resulting from premature death or illness encountered along an
individual’s financial journey.
In a nutshell, insurance provides a tough shield against human or natural
catastrophes that will disrupt the smooth working of all the other financial plans.
Insurance, Estate and Tax Planning
(Access video via iStudyGuide)
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COR167 STUDY UNIT 3
SU3-3
REVIEW QUESTIONS
Attempt Questions 1-5.
Question 1
(a) Briefly describe the uses of term insurance.
(b) Briefly describe the following Term Life Insurance:
i. Term Life with a decreasing sum assured
ii. Term Life with an increasing sum assured
Question 2
Briefly describe the features of the following:
(a) Joint Life policies
(b) Modified Anticipated Endowment
(c) Limited-payment Whole Life Insurance
(d) Single premium Whole Life Insurance
(e) Non-participating Whole Life Insurance
Question 3
Identify the 6 different types of income that are chargeable to tax and briefly
describe each type of income.
Question 4
Briefly explain the four general guidelines which determine whether an expense is
deductible for income tax purposes.
Question 5
List any two tax avoidance strategies that are commonly used by the following:
a) an individual
b) an incorporated business
Question 6
Briefly explain what will happen to an individual’s estate upon death.
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COR167 STUDY UNIT 3
SU3-4
ANSWERS TO REVIEW QUESTIONS
Question 1
(a) The purpose of Term life insurance is to offer a basic level of protection
against the risk of death during a specified period of time.
(b) (i) Term Life with a decreasing sum assured/increasing sum assured.
The sum assured is decreasing constantly at a pre-determined
amount or rate, or adjusted downward depending on the level of
risk attached
The following products are the uses of term life insurance policies
with a decreasing sum assured:
 Mortgage Redemption Insurance to provide protection against a
mortgage loan
 Protection of Juvenile policy in the form of a premium waiver
rider rider
 Protection of Family Income plan
(b) (ii) Sum assured starts at one amount and increases, unless the policyowner
requests otherwise, by some specified amount or percentage
at a stated interval over the period of insurance
It is valuable when the insured wants to adjust the sum assured with
the ratios of inflation.
Question 2
(a) Written on more than one life. It is usually purchased by husband and wife
or by business partner where the joint policy-owners have financial interest
on each other’s life, although it is rare that business partners would use such
policies.
Death benefit is payable upon the death of the first life or second life
insured. The maturity benefit is payable if all those lives being insured
survive to the end of the policy period
(b) It provides partial benefit payments at a regular interval, e.g., every 3 years
as long as the insured is alive during the policy period.
A distinguishing feature of this type of policy is that the death benefit is not
reduced by the amount of the partial benefits that the insurer has paid until
the death of the life insured. Therefore, if the life insured dies within the
COR167 STUDY UNIT 3
SU3-5
term of the policy, the full sum assured will be payable, irrespective of any
sums that have been paid to the insured.
These policies are useful when parents plan ahead to budget for their
children’s educational expenses at a regular interval and the final amount
for university education.
(c) Premiums are payable for a limited period (1, 5, 10, 15, 20, 25, or 30 annual
premiums, or up to age 60, 65, or 70) as stipulated in the policy or until the
insured’s death, whichever comes first. Since this type of policy is meant for
a shorter period for premium payments, it generally holds that each
premium for this type of insurance is greater than the premium for an
Ordinary Life insurance. The cash value of this type of policy builds up at a
fast rate as compared to the growth of cash value in the Ordinary Whole
Life policy.
(d) Only one premium payment for lifetime death protection. The insurer
receives a large sum at the beginning of the policy period and will have a
long period for investment. The sum assured of the policy also tends to be
substantially larger.
One disadvantage of this policy is that the effective amount of insurance
coverage can be substantially less than the face amount of the policy
especially when the insured dies during the early policy period.
(e) This policy does not share in the surplus of the insurance company. The
premium is the lowest for a given sum assured as compared to other Whole
Life policies
Question 3
6 different types of income that are chargeable to tax and briefly describe each type
of income.
 Gains or profits from a trade, business, profession or vocation (for whatever
period of time such activities have been carried on or exercised)
 Gains or profits from any employment
 Dividends, interest or discounts
 Any pension, charge or annuity
 Rents, royalties, premiums and any other profits arising from property
 Any gains or profits of an income nature not falling within any of the above
items
COR167 STUDY UNIT 3
SU3-6
Question 4
Four general guidelines which determine whether an expense is deductible for
income tax purposes.
 It is a revenue expense not a capital expense
 It is wholly and exclusively incurred in the production of income
 It is not disallowed under Section 15 of the ITA
 It is not subject to restrictions under Section 14 of the ITA
Question 5
Two tax avoidance strategies:
a) CPF contributions, Separate assessments of income, timing of receipts for
individuals
b) Nature of income (loan vs equities), Deferral of receipts, pushing for ‘capital
gains’ status for an incorporated business
Question 6
The following techniques are useful in minimising estate duty:
 distribution of property before death, ideally gifts should fall outside the five
year period before death
 setting up trusts
 family companies – where the companies hold the assets in tax havens overseas

P(5.u)                 

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