When providing risk advice, there is often a need to bundle in lump sum total and permanent disability (TPD) and Crisis (trauma) cover alongside an income protection policy. By bundling these covers, it can provide additional capital protection in the event the client’s temporary disablement develops into more of an enduring permanent illness. Indeed, it could provide a more cost-effective form of protection against enduring illnesses than a ‘To Age 65’ income protection policy.

The unique calculators developed by AIAA’s Technical (TECE) team, have been created to help quantify the net present value (NPV) of capital, or TPD sum insured required today, in order to provide an income stream based on a set of parameters. Lump Sum Income Replacement Calculator

 

For example, the needs analysis may have identified a requirement to provide the client with a gross income stream of $60,000 pa, payable monthly, indexed at 3% pa for 25 years with an assumed annual return of 5% pa net of fees and tax, should they suffer from a permanent illness.  When inputting these variables into the calculator, a NPV TPD capital sum insured of $1.176M would be required. If the needs analysis has also identified a requirement for the TPD cover to also expunge $500,000 debt, then the NPV figure of $1.176m would be increased by say $550K (grossed up for super taxes - see the TECE Super Life & TPD Tax Calculator) to arrive at a total TPD sum insured of $1,726M.

If you would like further information about these calculators and our other technical resources, please visit the AIA Business Growth Hub or contact the TECE team at tece@aia.com