Before you take a life insurance or education policy for your child, read this FAQ:
http://www.tankinlian.com/faq/childlife.html
Monday, March 10, 2008
Critical illness premium subject to revision
The premium for critical illness is not guaranteed. The insurance company can increase the premium, based on future claim experience. It will apply to existing critical illness policies taken during the past few years. Policies taken before do not have the adjustment clause.
If the claim experience is good, the insurance company does not reduce the premium. If you take a participating policy, you may enjoy a higher rate of bonus. This depends on whether the insurance company keep its expenses low and shares its surplus fairly with its policyholders.
If the claim experience is good, the insurance company does not reduce the premium. If you take a participating policy, you may enjoy a higher rate of bonus. This depends on whether the insurance company keep its expenses low and shares its surplus fairly with its policyholders.
Critical Illness - how to insure
Critical illness insurance for whole lfie is expensive. A male at 30 has to pay a monthly premium of about $630 to buy whole life critical illness cover for $300,000 (about 5 year's salary).
If this person buys a 25 year decreasing critical illness cover, he pays a premium of about $37 a month.
If the remaining $593 is invested in a low cost fund to earn an average of 5% per annum, the savings will accumulate to $300,000 in 23 years (i.e. at the age of 53 years). There is no need to wait for critical illness to collect $300,000. The regular investment plan will produce this amount.
At the end of 35 years, when he reaches age 65, the regular investment plan is projected to reach $643,000. This will be much more than the critical illness cover of $300,000 plus any bonus that is added to this amount.
Lesson: Buy critical illness cover for one year's salary only, on a short term basis. Insure five year's salary on a 25 year decreasing term plan. Invest about 10% to 15% of your salary in a low cost investment fund.
If this person buys a 25 year decreasing critical illness cover, he pays a premium of about $37 a month.
If the remaining $593 is invested in a low cost fund to earn an average of 5% per annum, the savings will accumulate to $300,000 in 23 years (i.e. at the age of 53 years). There is no need to wait for critical illness to collect $300,000. The regular investment plan will produce this amount.
At the end of 35 years, when he reaches age 65, the regular investment plan is projected to reach $643,000. This will be much more than the critical illness cover of $300,000 plus any bonus that is added to this amount.
Lesson: Buy critical illness cover for one year's salary only, on a short term basis. Insure five year's salary on a 25 year decreasing term plan. Invest about 10% to 15% of your salary in a low cost investment fund.
Where to buy term insurance?
Dear Mr. Tan,
You have been recommening to "buy term". Where can I buy term insurance? How much is the premium for insuring $300,000? I spoke to a few agents who recommended against it. They said that it is better to buy whole life as it has a cash value.
REPLY
You have to buy term insurance directly from the insurance company. You can telephone a few insurance company as follows:
http://www.tankinlian.com/faq/termd.html
Here are the benchmark premium rates for three types of term insurance:
http://www.tankinlian.com/faq/benchmark.html
A good combination is:
- level term insurance for one year's salary
- income benefit for 20 years based on 70% of current salary
You have been recommening to "buy term". Where can I buy term insurance? How much is the premium for insuring $300,000? I spoke to a few agents who recommended against it. They said that it is better to buy whole life as it has a cash value.
REPLY
You have to buy term insurance directly from the insurance company. You can telephone a few insurance company as follows:
http://www.tankinlian.com/faq/termd.html
Here are the benchmark premium rates for three types of term insurance:
http://www.tankinlian.com/faq/benchmark.html
A good combination is:
- level term insurance for one year's salary
- income benefit for 20 years based on 70% of current salary
Distribution channels
Currently, IFA can only sell insurance policies from most of the insurance companies expect AIA, Great Eastern and Prudential. Why is this so?
The road shows from these three insurance companies and also NTUC Income are everywhere. Moreover, their sales pitch is very aggressive, more like salesmen than financial adviser.
Should MAS only allow only IFA with CFP and CPA qualifications to provide financial advice and sell policies from any insurance company? The other insurance companies can sell their insurance through direct means, such as internet and phone hotline?
REPLY
The three companies wish to sell their life insurance products through their own agents. They do not wish to sell them through the IFAs. It is their business decision.
It is difficult for MAS to tell the insurance companies to stop selling throughtheir own agents. I hope that a new insurance company will be set up to sell low cost insurance through the internet and call center.
The road shows from these three insurance companies and also NTUC Income are everywhere. Moreover, their sales pitch is very aggressive, more like salesmen than financial adviser.
Should MAS only allow only IFA with CFP and CPA qualifications to provide financial advice and sell policies from any insurance company? The other insurance companies can sell their insurance through direct means, such as internet and phone hotline?
REPLY
The three companies wish to sell their life insurance products through their own agents. They do not wish to sell them through the IFAs. It is their business decision.
It is difficult for MAS to tell the insurance companies to stop selling throughtheir own agents. I hope that a new insurance company will be set up to sell low cost insurance through the internet and call center.
Whole life policy
Dear Mr Tan,
Your blog has mentioned so much about buy term invest the difference.
When I ask my friends and co-workers, most of them buy whole life policies and want to surrender the policy when they retire. Some said that the cash value will be reduced after age 65 and it will be better to surrender it. Why is this so? Is this defeat the purpose of having whole life insurance?
Is this the reason why you want to educate people to buy term insurance till age 65 and invest the difference? They can avoid the high distribution charges (at least 15 months of premium) and get a better return on their savings by investing in low cost funds, such as ETFs, unit trusts from online distributers?
REPLY
The sum assured under a whole life policy should continue at the same level, provided that the premium continue to be paid yearly. If the policyholder decide to stop the premium after age 65, the sum assured will be reduced.
A term insurance plan provides high coverage at low cost. The savings should be invested in a low cost investment fund to get a good return.
Your blog has mentioned so much about buy term invest the difference.
When I ask my friends and co-workers, most of them buy whole life policies and want to surrender the policy when they retire. Some said that the cash value will be reduced after age 65 and it will be better to surrender it. Why is this so? Is this defeat the purpose of having whole life insurance?
Is this the reason why you want to educate people to buy term insurance till age 65 and invest the difference? They can avoid the high distribution charges (at least 15 months of premium) and get a better return on their savings by investing in low cost funds, such as ETFs, unit trusts from online distributers?
REPLY
The sum assured under a whole life policy should continue at the same level, provided that the premium continue to be paid yearly. If the policyholder decide to stop the premium after age 65, the sum assured will be reduced.
A term insurance plan provides high coverage at low cost. The savings should be invested in a low cost investment fund to get a good return.
Travel to Jakarta
I will be in Jakarta for the next four days. The updates to my blog will be less frequent, as internet connection from Jakarta is slow and expensive.
Satisfactory return on Endowment Policy
Hi Mr. Tan,
In Mar 1994, I bought a 14-year endowment with compound reversionary bonus insurance policy from company X, paying an annual premium of $2,390. The policy provides a basic sum assured of $30,000.
Today, this policy has matured. The company has now given a cheque of $45,350, comprising $30,000 sum assured, $12,792 accumulated bonus and $2,558 special maturity bonus. Do you think this is a reasonable return?
REPLY
The return is 4.0% per annum (based on annual premium, payable in advance). It is quite satisfactory.
In Mar 1994, I bought a 14-year endowment with compound reversionary bonus insurance policy from company X, paying an annual premium of $2,390. The policy provides a basic sum assured of $30,000.
Today, this policy has matured. The company has now given a cheque of $45,350, comprising $30,000 sum assured, $12,792 accumulated bonus and $2,558 special maturity bonus. Do you think this is a reasonable return?
REPLY
The return is 4.0% per annum (based on annual premium, payable in advance). It is quite satisfactory.
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