Tan Kin Lian's Blog: Better to buy term and invest the difference

Monday, February 19, 2007

Better to buy term and invest the difference

Dear Mr Tan,

In December 2002 (@ age 35), I brought a life insurance policy from an insurance company which paid a monthly premium of S$96.50. The benefits are:

- Death or TPD coverage, S$25,000.
- if surrender at age of 65, based on the Benefit Illustration (Nov 2002), will receive a lump sum of approximately S$50,000 (Non Guaranteed).

What are your comments about this policy?

WC

--------------------

Dear WC

If you get a return of $50000 at age 65 (after 30 years), you are getting a yield of 2.88%. This is not too bad, but I think that the return from a similar product from NTUC Income should be better. I do not have the figure, but you can ask the business center in NTUC Income to give you a quotation.

You can call them at 6510 2860. See http://www.income.coop/businesscentre/

I prefer to buy a decreasing term assurance and invest the difference in a large, well diversified, low cost fund. You can read about the i-term and ideal plan in www.income.coop/faq.

The cost of the decreasing term should be less than 10% of your premium. If you invest the remaining 90% (ie $1,042 a year), you may be able to get the following amount at the end of 30 years:

Assume an average return of 4% per annum: amount at end of 30 years: $60,700
Assume an average return of 6% per annum: amount at end of 30 years: $87,300

Note: these projections are not guaranteed.

Wish you the best for the Lunar New Year

Tan Kin Lian

4 comments:

Anonymous said...: Hi Mr. Tan,

Thanks for sharing this informative blog with us.

Btw, I read that you have mentioned "decreasing term assurance" quite a couple of times in your blog. May I know what is decreasing term assurance? Any difference from a normal term assurance?

Hope you can help. Thanks.

Thanks and regards
Terence; February 20, 2007 2:03 AM
Tan Kin Lian said...: If you insure $150,000 under a 30 year decreasing term insurance, the coverage will reduce by $5,000 each year. At the end of 30 years, the coverage is NIL.

The rationale for this type of plan is that your savings will increase each year (by more than $5,000 hopefully), so you can afford to have a reducing cover.

This plan provides a higher coverage when you are younger, and your family need is higher.

It also reduces the cost of the term insurance by about 50%.; February 21, 2007 9:04 AM
Anonymous said...: Hi Mr Tan,

I am looking to get a new insurance cover as my current endownment plan will expire in about 5 years time. The decreasing term assurance you recommend looks to be quite affordable. Does it cover critical illness or only TPD? I'm looking for one that covers both.

Happy & Healthy New Year to you!

Best Regards,
Lynn; February 21, 2007 10:56 AM
Tan Kin Lian said...: Dear Lynn

You can buy a decreasing term to cover death, disabilty and 30 dread disease.

Ask an adviser from NTUC Income or visit the Bras Basah business center.; February 21, 2007 8:05 PM