Dear Mr Tan,
Your blog has mentioned so much about buy term invest the difference.
When I ask my friends and co-workers, most of them buy whole life policies and want to surrender the policy when they retire. Some said that the cash value will be reduced after age 65 and it will be better to surrender it. Why is this so? Is this defeat the purpose of having whole life insurance?
Is this the reason why you want to educate people to buy term insurance till age 65 and invest the difference? They can avoid the high distribution charges (at least 15 months of premium) and get a better return on their savings by investing in low cost funds, such as ETFs, unit trusts from online distributers?
REPLY
The sum assured under a whole life policy should continue at the same level, provided that the premium continue to be paid yearly. If the policyholder decide to stop the premium after age 65, the sum assured will be reduced.
A term insurance plan provides high coverage at low cost. The savings should be invested in a low cost investment fund to get a good return.
Whole life used to be used to address estate duty. But now it is repealed. So what is left of whole life? It can still be used for legacy. Who thinks of legacy.? Only the rich who have lots of money to bequeath to next generation.
ReplyDeleteFor the people generally what legacy, for them they are struggling to make their money work very hard but unknowingly got robbed by insurance salesmen who made them to buy whole life but they never keep for whole life. So why buy whole life then?
Whose idea? Of course , it is 'your ever freindly insurance salesmen, who is not qualified, dishonest, greedy and who never thought of your interest.
Caveat: before you cancel get a qualified and honest adviser to review for you.
Whole life policy is not all bad. It is provides affordable critical illness coverage when you are above a certain age, say over 55-60.
ReplyDeleteAt this age, term coverage will be expensive. The decision point here is whether one have enough savings to provide coverage of this uncertainty at that age.
If the surrender value of the whole life is converted to annuity, is like a piggy bank where you slowly withdraw the savings you've accumulated over long periods of time.
While the yield of a whole life policy is low, the general idea about getting whole life policy is assurance that you will ride through the unexpected events of life.
What is disappointing in this industry is some group of insurance sales force who thinks that filling up some so call 'need analysis' or 'wealth management' forms can help to plan the financial needs of clients.
I have recently encountered a sales man trying to sell me whole life policy for my soon-to-be-born kid with some cash back features.
Well, what is there to insure about since life have not even started !
I need to buy insurance against bad advise instead.