Dear Mr Tan,
I wish to seek your advise on whether I should take up a Limited Living Policy to which I need not pay any premiums after 20 years of retaining the policy. I still enjoy the protection and returns.
Currently I am holding a Foundation policy and a Pioneer policy from NTUC Income. I had this feeling that I was not insured enough so I contacted an agent who ecommended the Limited Living Policy.
I am now seeking your advice whether should I be going ahead with this policy.
MY REPLY:
Please read this FAQ.
In my view, it is better to buy term insurance and invest the difference in an investment fund, such as the combined fund of NTUC Income.
You can ask the adviser to show the difference in return under both options. You can make a more informed decision.
Don't be taken in by the limited premium fad. It is not to your advantage because you have to think between adequate coverage and the high premium. 20 years is also not short. If you can maintain for 20 years you should be able to maintain longer.With ordinary living plan you can convert to paid up when you don't need high coverage especially when you are retired and without an income.
ReplyDeleteLimited premium plans became popular after the fiasco of the "critical year" saga .In fact all the insurance companies had this feature but one whose agents went beyond and guaranteed it.It was the greed and misrepresentation of the agents and not the company's faults. You know what happened to the agents. Executed!!!
There is a misconception about Limited Premium plans . Insurers are not idiots. If people think having to pay a short period and yet can be insured forever comes free they are decieved.
Did you know that you can buy a single premium living whole life plan? You just pay once and you are covered for life. It works on the same principle as limited premium plans.But what is the premium?
If you want protection just buy one that can cover your needs fully and at the lowest possible cost. This is your primary need . Don't confuse with saving.It is often used by insurance agents to fool you. Did you know how much commission they recieve? Did it occur to you why they are so keen to sell you limited premium when there are other better plans? COMMISSION and HUGE COMMISSION!!
May be this will get you down to earth. For a young man like you,no dependants, you need to cover 3 to 5 times your annual salary plus a sum for treatment cost for critical illness. Buying limited premium, are you able to afford so much coverage?
Mr. Tan's advice is the best. You will be grateful to him one day. You will curse the insurance agent one day if you listen to him now.
Insurance agents don't care whether you are covered enough. It can be a small sum assured but if the premium is big it is okay with the agent.The commission is still good for the agent. Limited premium is like that.It is so expensive, the coverage is low. If you want to cover enough it would cost you a bomb. Do you think you can hold it for 20 years if it is large sum assured? Buying insurance is about protection and not saving. There is a better way to save. You can read MR. Tan's advice.
ReplyDeleteA high percentage of policyholders lapse their whole life, and endowment plans.Why? Because the policies have long lock in period and premium is high. With limited premium plan the premium is even higher. The lock in is at least 20 years which is not short.
ReplyDeleteStatistics has shown that the crucial periods are first 7 years, during this period lapse is highest; then during the 15 year period there may be policy loan and eventually lapsed if there is prolonged financial problem. Only about 10% hold it to old age at 65 when they also terminate for cash value.They don't hold it for whole life. Why buy whole life then?
The rich buy term for specific purpose. They buy to address estate duty or to leave a legacy. With small premium they can create huge estate.Today term plan can cover you to 100 years old.The rich are not interested in the cash value.For saving it is a poor means, there are better ways as mentioned by Mr. Tan.