Question 3

(30 marks)

Peter Gan and Flora Yan are both 50 years old. Peter works for an advertising agency as Creative Director with a monthly salary of $90,000. Flora is not working but she has a pension fund which is paying her $30,000 per month for the rest of her life. Peter has total equity and bond investment of $3,000,000, and he has a term life insurance policy from his company equal to twice his annual salary. Their home was bought some years ago but still have $1,200,000 mortgage outstanding. Their monthly living expenses totaled $50,000. Peter wants to protect Floras life quality for the next 30 years.

Meanwhile, the couples home is covered by a household insurance. Their home was recently damaged by typhoon and the replacement value was $50,000. Their policy coverage was $100,000 which met the co-insurance clause, with a $1,000 deductible.

All figures are in current dollars.

(a)

Using the needs approach for life insurance, construct a table to calculate Peters insurance needs (assume funeral expense $50,000).

(15 marks)

(b)	Gauge how much will the insurance company pay for the typhoon damage?	(5 marks)
(c)	Explain the concept of risk and the basics of life insurance underwriting. Indicate the perils that most properties are insured for under various types of homeowners policies.	(10 marks)