Modelling the life insurance needs using the human life value revision method

Transcription

1 Hm Sarch Cllctins Jurnals Abut Cntact us My IOPscinc Mdlling th lif insuranc nds using th human lif valu rvisin mthd This cntnt has bn dnladd frm IOPscinc. Plas scrll dn t s th full tt. 3 J. Phys.: Cnf. Sr ( i th tabl f cntnts fr this issu, r g t th jurnal hmpag fr mr Dnlad dtails: IP Addrss: This cntnt as dnladd n 9//5 at 8: Plas nt that trms and cnditins apply.

2 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 Mdlling th lif insuranc nds using th human lif valu rvisin mthd Haslifah Hashim and David Srvic Faculty f Cmputr and Mathmatical Scincs, Univrsti Tknlgi MARA, Malaysia Schl f Financ, Actuarial Studis and Applid Statistics, Australian Natinal Univrsity, Australia [email protected] Abstract. Thr ar numrus mthds t dtrmin th apprpriat amunt f lif insuranc a prsn nds it can b scintific r simplistic. Many lif insuranc agnts and financial advisrs simply rly n traditinal ruls f thumb using th multipl f incm mthd. Th mr scintific mthds ar th nds analysis and th human lif valu. Th nds analysis is rgardd as th mst cmmnly usd sals tl and th human lif valu is th mst agrd acadmic prssin fr th purps f lif insuranc. Hvr, thr ar svral aknsss f using bth mthds. By using nds analysis as a sals tl, th rcmmndatin amunt f lif insuranc uld lav a prsn undrinsurd. Similar gs t th human lif valu mthd. Nvrthlss, bth mthds can b imprvd ith a f rvisins. Th pst-dath nds undr th nds analysis must b rvisd t incrprat th rality that th family s standard f living changs vr tim. Th prjctin f a changing standard f living is a part f human lif valu analysis. Thrfr, this rsarch lkd int bth mthds and cmbins bth cncpt f nds analysis and human lif valu t crat a prful mthdlgy that prvid adquat lif insuranc prtctin a mthd nam it as th Human Lif alu Rvisin Mthd.. Intrductin H much lif insuranc ds a prsn nd? This is a cmmn qustin, but th ansr can b quit cmplicatd. This has bn at th cr f th dilmma f lif insuranc agnts and financial advisrs. Thy can mrly guss using a simpl multipl f currnt incm r sm f thm turn t tls lik lif insuranc r financial calculatrs that usd scintific mthds. Th fact is, nt all lif insuranc agnts and financial advisrs scintifically valuat th lif insuranc cvr ndd fr thir clints and hnc a prfssinal basis has bn lacking in lif insuranc slling. This is th rasn hy a prsn is frquntly undr r vrinsurd. Thr ar many diffrnt mthds f calculating h much lif insuranc a prsn shuld carry, ranging frm th simpl t th cmpl. Many lif insuranc agnts and financial advisrs simply rly n traditinal ruls f thumb. A cmmn rul is that a prsn lif shuld b insurd fr a minimum f si t tn tims f annual incm []. An ldr prsn uld us th lr nd f th rang and a yungr prsn shuld cnsidr insuranc cvrag at th highr nd sinc thy typically hav lss savings, fr invstmnts and mdst amunts in thir rtirmnt plans. Clarly, this mthd is vry simpl, but it fails t tak int accunt a prsn individual nds and bligatins such as hushld dmgraphics, past savings, scial scurity ffsts and husing pnss. It als ignrs pctd lif Publishd undr licnc by Ltd

3 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 changs and individual prfrncs abut sustaining th living standard f survivrs. In additin, diffrnt lif insuranc agnts may suggst diffrnt multipls. Th mr scintific mthds t dtrmin th apprpriat amunt f lif insuranc a prsn shuld carry ar th human lif valu and th nds analysis. Th human lif valu cncpt as invntd in 97 by Slmn Hubnr, t stablish hat a family uld ls in incm upn th dath f th bradinnr f a family. This cncpt is nt limitd t lif insuranc in its applicatin and has bn usd in many thr ara including judicial aards in accidntal dath and disability liability cass and ky valu f a man. This mthd uss fur factrs t dtrmin h much lif insuranc ill b ndd t prtct a family and assts. Ths factrs ar annual incm and pnss, yars lft until rtirmnt, and th pctd valu f th currnt ringgit at th nd f this prid du t inflatin. Using ths factrs, a rasnably accurat assssmnt f th valu f an incm can b mad. In mathmatical trms, it is th nt prsnt valu f a prsn ptntial futur arnings fr th rst f thir rking lif. Th thr scintific mthd cmmnly usd by lif insuranc agnts and financial advisrs in calculating th amunt f lif insuranc shuld b purchasd is th nds analysis. It als has bn usd by mst financial planning bsits. A nds analysis lks at th surcs f incm and assts such as invstmnts, scial scurity and pnsin as a prtfli and rlats ths assts t nds that uld hav t b cvrd and dtrmin any additinal lif insuranc rquirmnts. Anthr ay t calculat lif insuranc nds is using th cnmic apprach hich is basd n th lif-cycl mdl f saving and th cannical mdl f lif insuranc. Th gal f th cnmic apprach is t smth hushld s living standards vr thir lif-cycl and t nsur cmparabl living standards fr ptntial survivrs. In th cnmic apprach, spnding targts ar ndgnus. Th targts ar drivd by calculating th mst that ach hushld can affrd t cnsum in th prsnt givn that it ants t prsrv that living standard int th futur []. Ecnmic Scurity Plannr, knn as ESPlannr sftar as dvlpd by Duglas Brnhim, Jagadsh Gkhal and Laurnc Ktlikff basd n this apprach [3]. Th sftar calculats a prsn and his family s highst sustainabl living standard and th amunts thy nd t sav and insur t maintain thir standard f living thrugh tim. Hvr, th sftar rquirs a trmndus amunt f data ntry abut th usr s past, prsnt and futur financial lif t bgin th financial planning prcss.. Human Lif alu and Nds Analysis as Scintific Mthds t Estimat Lif Insuranc Nds This rsarch fcuss n t scintific mthds in dtrmining th lif insuranc nds th human lif valu and nds analysis. Th human lif valu apprach is mr cmprhnsiv insfar as it cvrs bth spcific and unfrsn nds. Whras, th nds analysis cvrs nly spcific nds and its accuracy rlis cmpltly n th assumptins it uss t calculat th nds. Bth mthds ar accptd practics usd ithin th lif insuranc industry. Accrding t Jhn Scarbrugh in his articl th Balanc f Lif that as publishd in Advisr Tday, th mst cmmnly usd sals tl is th capital nds analysis and th human lif valu is th mst agrd acadmic prssin fr th purps f lif insuranc. This sctin prsnts an tnsiv rvi f bth mthds... Human lif valu Th human lif valu cncpt is gnrally assciatd ith lif insuranc. Th cncpt hvr is nt limitd t insuranc in its applicatin and has bn usd in many thr aras an analysis f ppulatin t stimat th valu f natin, lif insuranc prgrams, judicial aards in accidntal dath and disability liability cass, assssmnt f public plicis and ky valu f a man. On f th first attmpts t stimat th mntary valu f a human bing as mad in yar 69 by an English statistician, William Ptty. H usd th cncpt f human capital t dtrmin th capital valu f natin. Th arlist rfrnc t th human lif valu cncpt in lif insuranc as mad by Jacb Grn in his bk An Agnt s Wrk: H t Rprsnt th Cnncticut Mutual Lif Insuranc Cmpany. Th bk that as publishd in 885 discussd th mny valu f human lif as a fundatin f lif insuranc. Accrding t Grn, th mny valu f a prsn s lif is th prsnt

4 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 valu f hat h may fairly b abl t arn in th futur and during his prbabl lif. If h dis, his family lss that sum just as rally, as if thy lst that much in any thr frm f prprty. His lif is thir prprty and that sum is th valu. An insuranc practitinr, Jhn Hlcmb had bn n f th first t rcgnis th pssibilitis f th human lif valu cncpt as a basis fr markting insuranc hn h pintd it in a spch givn at th Natinal Assciatin f Lif Undrritrs (NALU) cnvntin f 9. Thr yars latr, hn h had bcm prsidnt f Phni Mutual, Hlcmb as invitd t jin in Yal Univrsity s first curs in Insuranc. H discussd th applicatin f th human lif valu cncpt t lif insuranc in his first lctur and again in an addrss bfr th Ecnmic Club f Prvidnc, Rhd Island in January 96. Th nam mst ftn assciatd ith th human lif valu is Slmn Hubnr. It as mainly thrugh his ffrts that th cncpt gaind idsprad rcgnitin and accptanc. H bgan his discussin f th applicatin f human lif valu cncpt t lif insuranc in his Lif Insuranc bk publishd in 95. In this bk, h dvtd a sctin f th Capitalizatin f th alu f a Human Lif and Indmnificatin f that alu. Th philsphy that gvrns his thry is that th family must b sn as a businss, run accrding t businss principls and prtctd against financial impairmnt r bankruptcy du t th lss f th spus s lif, hich has a crtain cnmic valu. Hubnr dvlpd this cncpt furthr in 97 ith th publicatin f his Ecnmics f Lif Insuranc bk. In this bk, h discussd th human lif valu cncpt as th cnmic basis f lif insuranc, th mntary imprtanc f human lif valus, th nd fr scintific tratmnt and mthds fr appraisal. Hubnr capitalisd a prsn s cntributin t his family vr th prid t rtirmnt ag, r t th nd f his lif pctancy. In 93, Luis Dublin and Alfrd Ltka publishd a bk in this ara, th Mny alu f a Man. Thy dvlpd fr lif insuranc businss uss a sris f tabls, hich shuld giv th mny valu f prsns at varius ags, accrding t th amunt f thir arnings. Ths tabls uld b usful as a guid t lif insuranc agnts in advising thir clints, as a masur f hat is in his ffrt t prtct his family and as a masur f th cst f disas and prmatur dath. Th rks f Dublin and Ltka rprsnts a ral cntributin in that it as th first t b dvtd ntirly t an stimatin f th human lif valus f th ppulatin and n f th bst psitins availabl. Unfrtunatly, th statistical bas f th rk is ssntially a rflctin f th limitd availability f usabl data at th tim it as rittn. An Amrican rsarchr, Alfrd Hfflandr has cntinud th rsarch in human lif valu. H dfind th cncpt f human lif valu bth vrbally and mathmatically and shing h th cncpt might b applid t lif in diffrnt filds. H dvlpd a mathmatical mdl f th human lif valu fr lif insuranc by finding a singl sum, hich rprsnts th amunt ncssary t rplac th amunt a prsn uld nrmally hav prvidd fr his family had h livd. H als usd th sam tchniqus t stablish a mathmatical mdl f th mny valu f a prsn in cass f rcvry fr rngful dath [4]. In lif insuranc industry, th human lif valu cncpt is a subjct hich has bn f intrst fr many yars, sinc th tim f Hubnr. Th human lif valu as agrabl as th accurat apprach t riting lif insuranc n ppl s livs bcaus f full cnmic rplacmnt. Als in 98, th Natinal Assciatin f Lif Undrritrs (NALU) mt in Ls Angls, Califrnia t dtrmin th bst mthds fr valuating lif insuranc nds fr individuals. Thy agrd that th human lif valu apprach as an apprpriat ay t slv fr th dath bnfit amunt fr cnsumrs. Hvr, latr n th lif insuranc industry bgan t slly drift aay frm this apprach and adpt th nds analysis mthd that gnrats smallr amunt f lif insuranc rcmmndatins than th human lif valu. This as vid as asy t sll by many markting and sals dpartmnt... Nds analysis Bcaus human lif valu cncpt has ssntially bn ignrd in lif insuranc and financial srvics, th industry has cratd altrnativs. Nds analysis has bn arund sinc th arly days but it as rfind in th lat 96 s by Thmas Wlff. At th 966 Millin Dllar Rund Tabl mting, Wlff 3

5 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 intrducd th cncpt f capital prsrvatin in stat planning and calld it nds analysis. Th purps as t addrss th ral as ll as th immdiat nds f th family aftr th bradinnr s dath. In 98, h dsignd a n financial nds analysis t suit th nds f singl hushlds and a t-incm family. Th plan is flibl s th lif insuranc agnt can sll th typ and amunt f insuranc bst suitd t th custmr s lifstyl and incm. This mthd attmpts t dtrmin th amunt f lif insuranc a prsn nds by lking at t catgris pst dath nds and asst availabl t mt pst dath nds. Pst dath nds cnsist f th amunt f capital ndd aftr dath f th bradinnr, fr instanc childrn ducatin fund, hushld dbts and funral pnss. Eisting assts including lif insuranc and pst-dath surcs f incm that culd satisfy sm f ths rquirmnts ar idntifid. Any shrtfall implis a nd fr additinal lif insuranc. Th nds analysis mthd is th lif insuranc agnt s mst cmmnly usd sals tl and has bn usd by mst lif insuranc agnts, financial advisrs and financial-planning bsits. Thr ar hundrds f bsits prvid varius frms f calculatrs and mak calculatins basd n diffrnt mthdlgis. Thr ar at last t diffrnt typs f calculatrs nds analysis and human lif valu, hrby th nds analysis mthd is by far mr ppular [5]. Hvr, th lif insuranc rcmmndatins gnratd by intrnt bsits gnrally r unrliabl and id variatins in advic [6]. T pssibilitis ist fr bad utput frm ths calculatrs is bcaus f thr is an inadquat input r th undrlying mathmatical mdl is inaccurat r illgical [7]..3. Waknsss f bth human lif valu and nds analysis Thr ar svral aknsss f using human lif valu mthd aln, r nds analysis aln as a lif insuranc slling tl. Th aknss f using human lif valu t stimat th amunt f lif insuranc is that it ds nt tak int cnsidratin thr may b capital ndd immdiatly upn th dath f th bradinnr t satisfy crtain financial bligatins, fr instanc funral pnss, childrn ducatin cst, mrtgags and dbts. Th sam applis t nds analysis. Thr ar sm aknsss f using nds analysis in stimating th amunt f lif insuranc ndd. A nds analysis ignring futur changs and nly idntifis th nds f a family at th currnt situatin. Nds invitably chang in th futur as family charactristics and financs chang. By ignring ths factrs, nds analysis uld lav a prsn undrinsurd. Th nds analysis als raiss svral cncrns. If a prsn sts a spnding targt t high fr survivrs, th mthd ill gnrat a largr amunt f lif insuranc than is apprpriat. This ill caus th prsn t much in lif insuranc cvrag. If th spnding targt is st t l, th rcmmndd amunt ill lav th prsn undrinsurd. Mrvr, a nds analysis ds nt plicitly tak accunt f thr financial planning gals such as having an adquat incm in rtirmnt. As an analytical ngin, nds analysis is rally n mattr than asking thr basic qustins: What mny d yu think yur family ill ant aftr yu di?, hat d yu think thy ill hav aftr yu di? and h much f th diffrnc d yu ant t pay fr hil yu liv? [8]. It is suggstd that nds must incrprat th rality that th family s standard f living changs vr tim and nt simply bcaus f inflatin. Th prjctin f a changing in standard f living is an intgral lmnt f human lif valu mthd. Bth human lif valu and nds analysis d nt plicitly man having an adquat incm in rtirmnt. It uld als b affctd by surviving spus s ag and ability r inability t rk. By using nds analysis aln as a sals tl, th rcmmndatin amunt f lif insuranc uld lav a prsn vr r undrinsurd. Similar gs t th human lif valu mthd. Hvr, bth mthds can b imprvd ith a f rvisins. Th pst-dath nds undr th nds analysis must b rvisd t incrprat th rality that th family s standard f living changs vr tim. Th prjctin f a changing standard f living is a part f human lif valu analysis. This rsarch lkd int bth mthds and cmbin bth cncpt f nds analysis and human lif valu t crat a prful mthdlgy that prvid adquat lif insuranc prtctin a mthd that nam th Human Lif alu Rvisin Mthd. 4

6 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 3. Frmulatin f th Human Lif alu Rvisin Mthd Th primary functin f lif insuranc is t cvr th cnmic lss t a family causd by th dath f th bradinnr. A bradinnr s dmand fr lif insuranc dpnds n th dmgraphic structur f his hushld. In Malaysia, gnrally th bradinnr is th husband and th bnficiaris ar his if and childrn. In this rsarch, thr majr aras ar mphasisd in dvlping th human lif valu rvisin mthd mdl: Mdlling f incm: Th bradinnr s ttal annual incm vr th rmaining yars f his rking liftim as ll as his rtirmnt bnfits. Mdlling f incm ta: Th incm ta is calculatd using th isting ta tabls and ruls prducd by th Inland Rvnu Dpartmnt in Malaysia. Mdlling f pnditurs: Th hushld pnditurs f th bradinnr and his family mmbrs ar calculatd using th data publishd by th Dpartmnt f Statistics, Malaysia. Any capital ndd immdiatly upn th dath f th bradinnr is idntifid, fr ampl childrn s ducatin cst. Th cntral fatur f th mdl is that individuals ar brn, rk fr a prid f tim, rtir and di. During thir rking liftim, a prsn has t sav fr rtirmnt. This typ f mdl has a lng traditin sinc th riginal rk f Franc Mdigliani and Albrt And in thir lif-cycl hypthsis. Thrfr, all majr stags f a lif-cycl r analysd in ur mdl unattachd, marriag, parnting frm babis thrugh adlscnts, launching adult childrn, rtirmnt and snir yars. 3.. Mdlling f incm T bgin th human lif valu rvisin mthd frmulatin, stimatd th bradinnr s ttal incm fr ach yar frm prjctin f his currnt salary vr th rmaining yars f his rking liftim, and incm aftr rtirmnt such as rtirmnt bnfits. Fr marrid cupls, stimatd th incm f bth th husband and if. In Malaysia, th had f th hushld is th husband. H is th surc f an incm r arnings stram t his family. W flld Gldsmith s mthd that includs if s incm in dtrmining th amunt f lif insuranc nds n th husband [9]. In his rsarch, Gldsmith cnsidrd th if s human capital accumulatin in dtrmining purchass f lif insuranc n th husband, taking int cnsidratin th if s labur frc participatin and th hushld siz. Th factrs invlvd in calculating th prsnt valu f incm ar, = Currnt ag I h(+t) = Ttal incm fr th husband at ag +t ( ) h = Husband s rking lif pctancy EPF Savings = Husband s Emply Prvidnt Fund (EPF) savings n rtirmnt h S = Currnt mnthly salary at ag +t EPF = Th statutry Emply Prvidnt Fund (EPF) cntributin rat (mply) SOCSO = Scial Scurity Organisatin s cntributin rat s = Cnstant futur salary incrmnt rat pr annum p = Cnstant prmtinal incrmnt rat t P = Prbability that a prsn ag ill surviv fr t mr yars i = Intrst rat t = Prsnt valu at tim t Th frmula t stimat th ttal incm fr th husband at ag +t is as flls, t I S s p P EPF SOCSO h( t) t And, () SOCSO, hn S > RM3, 5

7 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 () s. 6, hn t (3) Fr th prmtinal scal, dfin n 9 p p p p3... p9, hr t an And hr, p.99, hn a 5 p.94, hn a 8 p 3.49, hn a3 3 p 4.3, hn a4 34 p 5., hn a5 4 p 6., hn a6 46 p 7., hn a7 5 p 8., hn a8 56 p 9., hn a9 58 Th incm fr th bradinnr, hich is th husband is stimatd fr ach yar until rtirmnt ag. On th rtirmnt ag, th husband rcivs th full amunt f EPF savings. Thrfr, th prsnt valu f incm fr th husband is as flls, h P Ih Ih( ) Ih( ) Ih( )... I h h EPF Savings h h t P I h h I h t) EPF Savings Whr, h h ( t =,,, 3 t < ( ) h () i And (EPF Savings) is th prjctd EPF savings at th nd f n yars, n s n d Xk d, if s d s d Xk Xk n s d s d n d, if s d n d, if s d Nt, again n a yar-t-yar basis, th incm fr th if is prjctd. Lt, = Husband s currnt ag y = Wif s currnt ag I (y+t), h(+t) = Ttal incm fr th if at ag y+t (hil th husband s ag is +t) ( ) h = Husband s rking lif pctancy EPF Savings = Husband s Emply Prvidnt Fund (EPF) savings n rtirmnt h S EPF SOCSO = Husband s currnt mnthly salary at ag +t = Th statutry Emply Prvidnt Fund (EPF) cntributin rat (mply) = Scial Scurity Organisatin s cntributin rat 6

8 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 s p t P t P y i f y t t = Cnstant futur salary incrmnt rat pr annum = Cnstant prmtinal incrmnt rat = Prbability that a husband ag ill surviv fr t mr yars = Prbability that a if ag y ill surviv fr t mr yars = Wmn s labur frc participatin rat at ag y+t = Intrst rat = Prsnt valu at tim t Th frmula t stimat th ttal incm fr th if at ag y+t is as flls, t I S s p P f P EPF SOCSO ( yt), h( t) t yt t y And, () SOCSO, hn S > RM3, () s. 6, hn t (3) Fr th prmtinal scal, dfin n 9 p p p p3... p9, hr t an And hr, p.99, hn a 5 p.94, hn a 8 p 3.49, hn a3 3 p 4.3, hn a4 34 p 5., hn a5 4 p 6., hn a6 46 p 7., hn a7 5 p 8., hn a8 56 Th incm fr th if is stimatd fr ach yar until rtirmnt ag. Thrfr, th prsnt valu f incm fr th if is as flls, y PI I ( y) I ( y) I ( y)... I y( y ) EPF Savings y y y y t y P I I EPF Savings y ( y t) y t =,,, 3 t < ( y ) () Lastly, th gnral frmula fr th ttal prsnt valu f incm is drivd as flls, P I ( ) (, hr P fr singl prsn (3) ) 3.. Mdlling f incm ta A prtin f individual incms is paid as tas. Ths ta calculatins ar mad using th isting ta tabls and ruls publishd by Th Inland Rvnu Dpartmnt Malaysia as stipulatd in th Incm Ta Act 967. An individual is tad n his chargabl incm at graduatd rats frm % t 8% aftr th dductin f ta rlifs. Prjcting incm tas rquirs prfrming ta calculatins fr ach yar in hich th ttal family incm is prjctd. Th factrs invlvd in calculating th prsnt valu f ta ar, = Currnt ag y = Wif s currnt ag T (y+t) = Ttal ta payabl fr marrid cupl at ag +t (husband) and y+t (if) T (+t) = Ttal ta payabl fr a singl man bfr gtting marrid at ag +t = Ttal ta payabl fr a singl man bfr gtting marrid at ag y+t T (y+t) I 7

9 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 ( y ) = Wrking lif pctancy f husband r if hichvr ccur last ( m ) = Ag at first marriag fr mn ( m y ) = Ag at first marriag fr mn t = Prsnt valu at tim t dd = Prsnal dductins rb = Rbats Th frmula t calculat th ta is as flls, Taabl incm in yar +t = I +t dd Ta chargd in yar +t = Ta n th first taabl incm + Ta n th nt taabl incm Thrfr, incm ta payabl in yar +t, T +t = Ta chargs in yar +t rb T cnduct th analysis f incm ta fr th purps f this human lif valu rvisin mthd mdl, payabl incm ta is stimatd fr ach yar until rtirmnt ag. Thus, th prsnt valu f th ttal incm ta payabl fr th husband is, P T Ty Ty Ty... T yy y y = T yt t =,,, 3 t < ( y ) (4) y t Fr a singl prsn, th incm ta payabl is stimatd fr ach yar until th ag at first marriag. Thn th analysis cntinus n th cmbind accunt assssmnt as shn abv. Fr a currntly singl man, P T T T T... T m h m h... T Fr a currntly singl man, P T Ty Ty Ty... T m y y m y... T y y y y y y y 3.3. Mdlling f pnditurs Epnditurs in this mdl cnsist f th prjctin f th ttal amunt f hushld pnditurs and cst f univrsity ducatin fr childrn. Firstly, stimatd th ttal amunt f hushld pnditurs fr ach yar until th pctd ag f dath f th husband r if hichvr ccur last. Th factrs invlvd in calculating th pnditurs ar, = Husband s currnt ag y = Wif s currnt ag E +t = Ttal pnditur csts at ag +t HEI = Hushld pnditur Ind HE (y+t) = Avrag mnthly hushld pnditur fr marrid cupl at ag +t fr th husband and at ag y+t fr th if HE (+t) = Avrag mnthly hushld pnditur fr a singl man bfr gtting marrid at ag +t HE (y+t) = Avrag mnthly hushld pnditur fr a singl man bfr gtting marrid at ag y+t ( y ) = Lif pctancy f husband r if hichvr ccur last ( m ) = Ag at first marriag fr mn ( m y ) = Ag at first marriag fr mn t = Prsnt valu at tim t 8

10 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 Th frmula t calculat th hushld pnditur is as flls, E HE HEI i t =,,, 3 t < ( y ) t t t Th prsnt valu f hushld pnditur fr th husband is dtrmind ith this frmula, P E Ey Ey Ey... E yy y y = E yt t =,,, 3 t < ( y ) (5) y t Fr a singl man and man, usd th similar mthd abv. Fr a currntly singl man, P E E E E... E m h m h y... E Fr a currntly singl man, P E E y E y E y... E m y y m y... E y y y y Th stimatin f th amunt f incm, prsnal ta and hushld pnditurs is a part f human lif valu analysis. This mthd may nt fully anticipat thr nds that aris ith th dath f a prsn, fr instanc funral pnss, childrn ducatin cst, mrtgags and dbts. An stimat f ths additinal cncrns is btaind thrugh a nds analysis apprach. This human lif valu rvisin mthd mdl als cnsidrd hushld dbts as pst-dath nds th family hav t mt flling th dath f th bradinnr. Bank Ngara Malaysia s Annual Rprt rprtd that 45% f ttal hushld dbts in Malaysia r mad f mrtgags, hil anthr % r hir-purchas financing. Crdit card dbts mad up nly 5% f hushld dbts. As hm lans ar a big cmmitmnt, rpaying it can b a majr burdn if calamity striks. Althugh it is nt cmpulsry t hav Mrtgag Rducing Trm Assuranc (MRTA) t scur hm lans, mst financial institutins in Malaysia mak it cmpulsry t insur against such an vnt. Altrnativly, brrrs can pt fr varius typs f lif plicis t scur th hm lan. Fr th purps f this rsarch, cmpild infrmatin frm 5 financial institutins in Malaysia ffring hm lans and it shs that 3 financial institutins imps as a cnditin f th hm lan t tak up an MRTA and financial institutins ffr lr intrst rats t ncurag brrrs t hav MRTA. Thrfr, ill nt includ mrtgag rpaymnt in ur human lif valu rvisin mthd mdl t avid rdundant insuranc cvrag. Th scnd largst catgry that mad up hushld dbts in Malaysia as hir purchas financing fr transprt vhicls. Hvr, ill nt includ this in th mdl sinc th stimatin has bn includd in th avrag mnthly pnditur pr hushld basd n Hushld Epnditur Survy. Th data undr th catgry f Transprt and Cmmunicatin cvrs th pnditur fr transprt including vhicl purchas, rad ta, mtr insuranc, maintnanc and parking f. Thrfr, incrpratd funral pnss and childrn s univrsity ducatin cst int ur mdl, as th cst is nt includd in th hushld pnditurs. Lt, = Currnt ag y = Wif s currnt ag OE = Ttal f thr pnss b i = Mdian ag at birth fr th i child accrding t ag f mthr, hr i =,,. n ( ) h = Husband s lif pctancy ( y ) = Wif s lif pctancy t = Prsnt valu at tim t y y 9

11 SciTch 3 Jurnal f Physics: Cnfrnc Sris 43 (3) 58 di:.88/ /43//58 Thrfr, th prsnt valu f thr pnss is as flls, b POE Educatincst fr thfirst childyb Educatincst fr thscnd childyb th bn y Educatincst fr thn child Funral pnssfr thif ybn Funral pnssfr thhusband y y y y b y... (6) Thn, th prsnt valu f nt futur incm fl fr th bradinnr can b calculatd using th quatin bl, Prsnt alu f Nt Futur Incm = ( 3) (4) (5) (6) (7) Finally, can stimat th amunt f lif insuranc rquird fr a prsn in tims f currnt incm by using th quatin bl. Any isting surcs f funds availabl t cvr ths nds such as th scial scurity bnfit frm th Emply s Prvidnt Fund (EPF) and currnt amunt f lif insuranc ill b dductd. Lif Insuranc Rquird in Timsf Incm = EPFsaving Currnt Lif Insuranc ( 7) Annual Incm 4. Cnclusin Th primary functin f lif insuranc is t cvr th cnmic lss t a family causd by th dath f th bradinnr. A bradinnr s dmand fr lif insuranc dpnds n th dmgraphic structur f his hushld. In Malaysia, gnrally th bradinnr is th husband and th bnficiaris ar his if and childrn. Th main purps f this rsarch is t idntify th strngth and aknss f th lif insuranc sals tl currntly usd in practic and dvlp a scintific mthd as a crrct slutin and hnc prvid adquat prtctin t rlat th amunt f lif insuranc a prsn nds t carry t th ral valu f a prsn s arnings. Th rsarch cmbind t mthds currntly usd in practic th nds analysis and human lif valu, and ith a f rvisins, dvlpd a mthd f dtrmining th amunt f lif insuranc nds. A mthd that nam th Human Lif alu Rvisin Mthd. In this rsarch, a human lif valu rvisin mthd mdl has bn dvlpd t dtrmin th amunt f lif insuranc rquird t prtct th family against cnmic lss in th vnt f th bradinnr s dath. T th nd, suggst a mdl t cmput th amunt f lif insuranc cvrag in a multipl f currnt annual incm that can b usd in th lif insuranc slling industry r as an undrriting guidlin. Rfrncs [] Crdll D M 4 J. Financial Planning [] Gkhal J, Ktlikff L J and Warshasky M Essays On Saving, Bqusts, Altruism and Lif-cycl Planning (Cambridg: Th MIT Prss) [3] Brnhim D B, Gkhal J, Ktlikff L J and Williams L Esplannr (Cambridg: Th MIT Prss) [4] Hfflandr A E 966 J. Risk and Insuranc [5] Elgr J F 3 J. Financial Srvic Prfssinals [6] Brayman S 9 J. Financial Planning 48 [7] Drfman M S and Adlman S W Risk Managmnt and Insuranc Rv [8] Daily G S Capital Stratgis Cnfrnc (N Yrk) [9] Gldsmith A 983 J. Risk and Insuranc