Education Goal Versus an Unaffordable Savings Plan
Mrs Ayesha, 33, a school vice-principal in Lahore, supports a household of four. Her husband, a bank officer, earns PKR 180,000 a month; their home-finance instalment is PKR 55,000 a month and they have PKR 700,000 in savings. Their children are aged 6 and 2. Ayesha wants to fund university education in 12 and 16 years and to protect the family if her husband dies. The husband's employer provides group life cover of PKR 2 million. Agent Khalid proposes a 20-year family takaful savings plan: annual contribution PKR 600,000 (one-third of household income), sum covered PKR 5 million, with projected maturity value PKR 14 million at 9% return. He says a protection-only plan 'wastes money' and that the savings plan is 'better because you get your money back'. Ayesha hesitates but says she can 'manage' by using her savings for the first contribution. A protection plan with a sum covered of PKR 10 million would cost about PKR 120,000 a year.
1. Conduct a suitability assessment. Identify the main needs, constraints and flaws in Khalid's proposal.
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Issue: The proposal appears driven by contribution size rather than by the family's protection and education needs.
Analysis: The main needs are income replacement if the husband dies, repayment or servicing of the PKR 55,000 monthly home-finance instalment, university funding in 12 and 16 years, and an emergency reserve. Existing resources are PKR 2 million of group cover, which is employment-linked and may end on job loss, and PKR 700,000 of savings, which is too small to be both an emergency fund and a first contribution.
A PKR 600,000 annual contribution is 33% of gross household income. That is likely unsustainable alongside a PKR 55,000 mortgage instalment, living costs and school fees. Using savings for the first contribution hides an affordability problem and leaves the family exposed. The PKR 5 million sum covered is low against an income of PKR 2.16 million a year and a mortgage; a common starting point is 8 to 12 times income, before deducting existing cover. The projected PKR 14 million at 9% is not guaranteed, and a 20-year savings plan has early-year charges and surrender penalties. Calling protection-only 'wasting money' is misleading: protection buys a large death benefit for a modest contribution.
Conclusion: The proposal is not suitable as presented. The file should record the affordability concern, the group-cover limitation and the non-guaranteed nature of the projection.
2. Recommend a suitable structure and justify it with numbers; state what must be documented.
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Issue: The family needs adequate cover first, then a realistic education funding plan.
Analysis: A protection-focused family takaful plan with a sum covered of about PKR 10 million would cost roughly PKR 120,000 a year, about 5.5% of gross income, and would close much of the gap left by the PKR 2 million group cover. Riders such as waiver of contribution on disability and accidental death should be considered if affordable. The PKR 700,000 savings should be retained as an emergency reserve, not used for the first contribution.
For education, the family can start a smaller savings plan or a disciplined Shariah-compliant investment once the protection cover and emergency fund are in place. If they can save, for example, PKR 150,000 to PKR 200,000 a year, that is about 7% to 9% of income and is more sustainable than PKR 600,000. The exact education target should be costed: university costs in 12 and 16 years are uncertain, so the plan should be reviewed annually. A split structure protects the family now while building a realistic education fund.
Conclusion: Recommend protection cover of about PKR 10 million plus a modest education savings contribution within affordability, with the emergency fund preserved. Document the needs analysis, income and expenses, existing cover, alternatives considered, the client's choice, and the fact that projections are not guaranteed.
3. Explain how the policy document and benefit illustration should be presented, including nomination and free look.
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Issue: Ayesha must understand the contract, not just the sales pitch.
Analysis: Khalid should present the benefit illustration at the assumed rates used by the operator and state clearly that the maturity values are not guaranteed. He should walk through the contribution allocation, wakala fees, tabarru' deduction, investment allocation, surrender value basis and any charges. The policy document should be explained section by section: definitions, benefits, exclusions, waiting periods, contribution payment and grace period, claim procedure, nomination and assignment rules, and the free-look period stated in the policy.
Nomination should be completed properly. Ayesha and her husband should understand that the nominee receives the death benefit subject to the policy terms and the applicable law, and that nomination is not a substitute for a will or Islamic inheritance planning. The free-look right should be explained as a chance to cancel within the stated period and receive the refund provided by the policy, after deductions permitted by the terms.
Conclusion: Khalid should give Ayesha time to read, encourage her to ask questions, and obtain her signature without blank fields. He should record that the non-guaranteed nature of projections, the free-look right and the nomination were explained.