1. Should I buy a life insurance policy for my child, so that my child can enjoy a lower premium rate by starting at a young age?
It is better for your child to take the life insurance policy at a later date, when he or she starts to work. Although the premium is higher at an older age, the increase in premium is less that the premiums that you had to pay during the earlier years (including the gain on investing the premiums).
The insurance agent is likely to sell you a high cost life insurance policy, such as an endowment or whole life policy, for your child. If your child buys a policy at a later date, he or she can buy a low cost term insurance and pay a premium that is much lower than the endowment or whole life policy. There is no need for you to buy life insurance for your child at an early age.
2. Should I take a separate life insurance policy to save for the tertiary education of my child?
It is better for you to invest the savings in a low cost investment fund. You will be able to earn a much higher return, compared to an education policy.
There is no need to take a separate policy for each child. You can make the total savings in your own investment account to meet the future financial needs of your family, including education and retirement. You will retain the flexibility on the amount, timing and purpose of the withdrawals from the investment account.
To ensure that there is adequate savings for your family, you should have adequate life insurance on your life, e.g. a level or decreasing term insurance. It is low cost and provides a large coverage.
3. Do I need to buy any insurance for my child?
You only need to buy insurance to cover the medical expense of your child.The Medishield policy from CPF is most suitable. It will cover the large hospital bills. You can pay the deductible from your Medisave account or from your personal savings.
4. I have bought an education policy for my child already. Should I continue the policy or cancel it?
You can ask the insurance company to quote the following:
(a) Cash value of the policy at the present time
(b) Cash value (estimated) of the policy in 5 years time
(c) Premium payable for the next 5 years
If the yield for the next 5 years is more than 3% per annum, it is all right to continue the policy. If it is less, you can cancel the policy and invest the premium in a low cost investment fund.
5. Does the life insurance policy taken on my child provide a good yield?
The yield is usually quite low, due to the high charges taken to pay commission to the agent and profit for the insurance company. Many policies take 15 to 20 years to reach the break-even point (i.e the cash value is equal to the total premiums paid). If you have invested in a low cost investment fund, you are likely to see a gain of at least 50%.
Tan Kin Lian
I would advise that you cancel the education plan if it was taken recently.3% is too low, not making your hard earned money work harder. You may suffer a loss but the loss can recouped quickly in a regular investment plan.
ReplyDeleteInsurance agents like to cook up a lot reasons, often the reasons border on emotion of the parents that children need insurance.All the children need is an H&S medical insurance.I am against a critical illness plan for children because it overlaps the H&S and generally the probability of contracting a dread illness is very low. It also deprives the parents of more urgent needs.The money could be better deployed to another area where it is most needed.However small the premium, it can mean a big coverage for the parents. Of course it depends on how sincere and competent is the agent to put the child's parents' interest first. Every thing boils down to the the adviser. If you get an honest and competent adviser the customer will get the best advice. Get an insurance salesman, your needs will be compromised.
ReplyDeleteZhumeng:o)
Why College Plus by TMAsia Life sells very well because it is a no nonsense education product.It has no insurance. Unlike other educational products with a lot of rubbish frills that dilute the return, it is fully focused on accumulating money for college funding.However, they are all endowment plans disguised.
ReplyDeleteOf course none of education products can beat a regular saving and investing plan using a low cost,diversified ILPs. It is a lesser risky than the endowment.
Zhumeng:o)
Will Medishield be enough to cover A ward restructured hospital or private hospital care for the child?
ReplyDeleteMost parents today, at the slightest flu,send to private doctor, so is Medshield sufficient as you have recommended?
I want to be objective because you seem to advise that Medishield is good enough. But as I understand from CPF website, it is good for C or B2 restructured hospital level of care.