Tan Kin Lian's Blog: Critical Illness

Tuesday, March 11, 2008

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.

11 comments:

Anonymous said...: Watching the vote for critical illness coverage i am amazed that majority go for whole life and cover for 5 years of income. This is a mistaken belief which is hard to change especailly in a kiasu Singapore.It is going to take a lot of education to change it. No wonder many Singapore are under insured. They think the tail end of their life is more important than the middle stage of their life. Of course , over the years, insurance agents have drummed it into their brain. It is like old habits but in this case it is myth, and money wasting myth.; March 11, 2008 11:17 AM
Anonymous said...: I don't think it's caused by people mentality that majority goes for whole life. But it's more on the recommendation from the insurance sales people that doesn't provide proper information or the people is not clear enough of the policy they are taken; March 11, 2008 2:35 PM
Anonymous said...: That is the mentality perpetrated by insurance agents to justify selling whole life. What should be kept whole life is a H&S medical plan and not a CI plan.; March 11, 2008 6:35 PM
Anonymous said...: The voters WANT whole life coverage and also WANT maximum coverage. You think it is possible with whole life?
I have not heard or seen people have enough of both. Money no enough in all cases. Only the rich who don't need but can splurge have more sense of needs than these people.No wonder Robert Kiyosaki advises that "one learns from rich dad than poor dad" about the roadmap to financial freedom
These other people have no idea of protection and needs other than fear and ignorance. Fear and ignorance often land them as victims of insurance agents,and like fear and greed that betray the investors.
If only they see reasons with their head than with eyes and heart so that they can see through the motives, often sinister,of insurance salesmen.If they persist looking at their financial needs through the eyes and heart of insurance agents they are doomed because their sense of peace of mind and security will be misplaced.

Zhumeng:o); March 11, 2008 10:57 PM
Anonymous said...: I think the concern of most people is what happens if this person is hit with a critical illness sometime between now and age 53 eg at age 40. Will his investments be enough to cover the medical expenses and loss of income?; March 12, 2008 8:27 AM
Anonymous said...: Just some comments to the comments on the post. This is NOT directed to Mr. Tan.

I think the amount of coverage of major illness depends on the person's needs and circumstances.

By saying that you ONLY need "one year salary" or "two year salary" or "five years salary", or a "reducing term" is better falls into the same category as insurance agents pushing to buy a whole life only. TO each his own right? For example, I am well aware of the potential of whole life but I dislike the limitation of term, so I bought my whole life (Prulife). Even after reading Mr. Tan's article, I still feel I made the right choice.

Everyone has their own choice to chose but I would resist the call to say people who buy whole life plans are making the wrong choice.

Secondly, the projection of an investment is still a projection. Nothing is guaranteed, not even the funds that you choose to invest in. The projected figures are based on a compounding interest calculation, either using PV, FV, or PMT with years and interest thrown in. This has absolutely no relevance to any investment in funds, ETFs or any index funds or stocks. A fund may be doing well for 1st 5 years and stagnant and then decline for next 10 years and vice-versa. That's why in prospectus, you don't see funds projecting how much they would earn in 20 or 30 years time, except to show you past performance, which does not guarantee future returns.

My father had never bought any insurance or hospitalisation plans, spent his whole life just investing in stocks and had never broke even, would you say that he was a "stupid" man or that he made a lot of "wrong" choices in life?

When we make comments, let's try to be objective because someone's circumstance and view is not everyone's circumstances.

R.; March 12, 2008 7:06 PM
Anonymous said...: That is right . The main concern is whether one has ENOUGH (often not enough because of whole life plan) to see them through the difficult time (between 24 to 65) when one is struck by dread disease and not when one is not earning after 65. Yes,after 65, chances of one getting struck by disease is HIGHER but not necessary one will get and even if you do get it is less devastating and worrying and only the treatment cost is incurred and which can be taken care of by an H&S plan.
The best insurance against ill health is not whole life insurance but excercise and proper diet.
Not the whole life insurance agents like to promote as must have. This is bull and lies. It only benefits the agents.; March 12, 2008 8:41 PM
Anonymous said...: When one keeps making wrong choices it is time to examine if one is stupid or unlucky or other reasons. What do you mean by 'stupid'? It means one is clueless about a particular field or subject or incompetent. One must be ready to admit and move on? The study of behavioral finance or gambling has many examples of this kind of people.
Learn from the rich(Rich dad poor dad).They always hire and pay an expert. The poor DIY and even worse if they do hire they end up with a insurance salesman who knows nothing but would sell ANYTHING THAT EARNS HIM OR HER A HIGH COMMISSION.
Mr. R. says one must be objective.The problem the agents are never objective and the customers are clueless about whole life. Customers have no idea how wholelife REALLY works for him or her. And the agents exploit this ignorance or "cluelessness" of THE CUSTOMERS AND SHOVED WHOLELIFE DOWN THE LIFE OF THE CusTOMERS. That is what is wrong and not whole life per se.
The agents are grossly biased. It is his or her pocket that determines the kind of insurance that is "good" for the cleints. That has been the issue here in this blog.; March 13, 2008 8:17 PM
Anonymous said...: wholelife or not wholelife.

term or no term life.

i dare say most of the people who contribute to this argument, may not even have a $500,000 term insurance to age 65.

after so much education in this blog, go get a term insurance and cover enough to at least $500,000 and prove the point.

fact of the matter is many do not even want to fork out small premium for large cover.; March 15, 2008 8:31 PM
Anonymous said...: Well, that is the right thing to, isn't it? If one is not interested to be fully insured why take up insurance in the first place? It is puzzling, isn't it?
Correct, you can have $500000 for as low $20 a month. Is it expensive? Something happens to you , dead, your dependents get $500000 less the funeral expenses .
Anyway, you will NEVER get an insurance salesman to propose that to you.He or she will be out of business.There is nothing to sell you anymore. So you see, what these agents are after. What NOBLE JOB these people are doing, they always claim. They will make sure they can sell you again and again. They will make sure they sell you whole life so that you cannot afford fully, leaving a gap that they can fill the next time.
This is the damned conspiracy and that is what they first learned in
licensing course.
What is review for ? For them it is not change of events or circumstances. For these agents it is to fill the gap they left some years a go. Isn't this and what you are told by your insurance agents.Never mind if you cannot afford to buy all ,wait until you have the budget or the money and buy more, to buy more whole life policy. Right?
This is the financial planning that the agents are doing for themselves, to plan that they have a flowing stream of income and money from you.; March 16, 2008 2:41 PM
Anonymous said...: Ha, I agree, there is one article in today's Sunday Times.

A 26 year old FA manager, earning over $20,000 with over riding.

Look to me FA agent makes even more money.; March 16, 2008 8:33 PM