Tan Kin Lian's Blog: Insurance for a child

Monday, November 26, 2007

Insurance for a child

Dear Mr. Tan,

An insurance agent advises me to buy life insurance for my child, so that she can enjoy a lower premium. The premium will increase when she takes up insurance at an older age. Is this correct?

REPLY

It is better for you to invest the additional savings in a low cost equity fund, as it can provide a much higher return than a life insurance policy.

When your child starts to work, she can buy decreasing term insurance, which is very low in cost. It is probably cheaper than the premium that you have to pay for her now.

Read these FAQ:
http://www.tankinlian.com/faq/child.html
http://www.tankinlian.com/faq/choice.html

5 comments:

Priyadi said...: the child doesn't need life insurance. if (excuse me) worst thing happens to the child, it won't affect anybody else financially. on the contrary, it will free up financial burden from the parents because they no longer have to support the child. if an agent recommended life insurance for my underaged child, I would immediately run away from him with disgust!; November 26, 2007 8:58 PM
Anonymous said...: This is the line that insurance agents love to use to frighten customers. The argument is untenable and an underhand tactic of salesmen.
The increase in premium in later age is more than compensated by the savings for not taking up the policy.
The more correct approach is to impress the importance of protection for the child rather than the premium.
This tactic is used by insurance salesmen to frighten customers into buying a plan with cash value. This reason is not much useful if it is term. The difference in premium is but not much.; November 27, 2007 10:49 AM
Anonymous said...: Dear Mr Tan,
Thank you for your clear and concise explanation of the various finantial tools as well as "traps" in the financial world.its really an eye opener.

One of your articles mentioned the purchase of global equity fund for a well diversified portfolio. i was wondering if I have purchased the right thing. I bought an AXA Entrepreneur fund some years back. Its called the ACMGI Globla Growth Trends Portfolio which consist of the following top 10 holdings:
Citigroup inc
halliburton co
Nomura securities co ltd
J P Morgan Chase & Co
American International grp
noble energy inc
schlumberger ltd
state street
general electric co
nabors industried ltd

As im not familiar with many of these foreign companies, would Mr Tan be able to kindly advise if this portfolio is a well diversified global equity fund?

Again thank you Mr Tan for your time to read this query.; November 28, 2007 12:15 PM
Tan Kin Lian said...: Reply to Coffee:

This fund appears to be focused on a certain sector of the market. It does not fit into my definition of large, well diversified fund, with low charges.

What are the charges of this fund?

If you invest in a specialty fund, you usually have to pay high charges.

Hopefully, the fund manager can make a good selection and get a higher return to compensate for the high charges. But this is not assured.

Studies have shown that most funds perform close to the market average. This is why I recommend to invest in low cost funds.

Some people have good experience with specialty funds. So, there are two sides to a coin.; November 29, 2007 2:59 PM
Anonymous said...: I do agree that a child does not need life insurance. As a parent if my child is to die, I do not need any benefits dervied from the death of the child.

I have accident and medical plans that adequately cover my child. However, there is one particular case which I do not have solution. If my child suffers some form of disability, how can I ensure/insure that the child is adequately provided for as I grow old and after my death and not drained the family finances in the process.; December 11, 2007 1:43 PM