Tan Kin Lian's Blog: Critical illness

Saturday, February 09, 2008

Critical illness

Dear Mr. Tan,

My annual income is around $50,000. Recently, I was recommended to buy a critical illness policy for $300,000 (to cover six years of earnings), but the premium cost about $600 per month, which takes away 15% of my salary. I cannot afford to pay so much, but I need the coverage. I need critical illness to cover my medical expenses and loss of income due to serious illness. What is your advice?

REPLY

You can buy a 30 year Decreasing Term policy to cover $300,000 for about 1% of your salary. If you save 10% of your salary and invest it in a diversified low cost fund to earn a good rate of return, you will be able to accumulate more than $300,000 over 30 years. By that time, you do not need any critical illness insurance.

You can cover most of the expenses of critical illness through a Shield policy, or the group insurance policy provided by your employer.

The chance of a critical illness occuring for a young person is very small. If you wish to cover against the occurence at a young age, you can buy a 20 year critical illness rider to cover $50,000 and pay a low premium. After 20 years, you would have accumulated more than sufficient savings to meet any loss of income.

Thsi is more cost effective than spending 15% of your income ona critical illness policy. This policy is costly due to the high commission earned by the agent, and the high charges levied by the insurance company.

Read this FAQ:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html

2 comments:

Anonymous said...: Buy term for critical illness until you are 60 years old and self insurance there after.Keep your medishield to take care up to 80% of the bill if you are struck with illness.
Buy Decreasing term to take care of dependents' income needs.
All this should leave you to start a retirement plan.To accumulate wealth there is nothing that beats investing in a broadly diversified portfolio.
Warning--- don't fall into those traps set by glib tongue salesmen to buy endowment like revosave, single premium endowment that distracts you with insurance coverage and all other rip off and useless plans.
Remember to separate your protection from investment. They must be independent of each other.; February 09, 2008 2:04 PM
Anonymous said...: Assuming you are a male ,30 years.
For $250k critical illness cover till age 60, monthly premium is about $115.
For 500k term for income replacement for 20 years, premium is about $55
For $500k decreasing term for 20 years, premium is about $35.
Either of the above combinations to address income replacement and critical illness the total monthly is between$150 to $170. Upon death now your coverage is $750K, total disability is also $750K. if critical illness comes before death, it is $250K and $500k if death follows,this amount goes to your dependents to take of them for next 20 or more years if invested.
How much you have to pay for vivolife(critical illness) and whole life. Probably you may not afford the premium. Will you compromise the coverage?
You must not becuase that will be putting your family and yourself in danger. But does your agent care?
He or she will tell to buy according to your budget and that the agent is putting his or her interest first before yours.
Whoever you are, don't buy revosave or vivolife because your needs are inevitably compromised and the agent doesn't care so long he or she makes a huge commission.; February 09, 2008 11:12 PM