Tan Kin Lian's Blog: Insuring against critical illness

Sunday, July 13, 2008

Insuring against critical illness

If you are 30 years old, and you wish to insure against critical illness for $100,000, you have the following choice:

1. Buy a "whole life" critical illness policy and pay $200 a month

2. Buy a 30 year critical illness cover and pay $40 a month

If you choose option 2, you can invest $160 a month in a low cost fund to earn an average of 5% per annum, you will get give you $128,000 in cash at the end of 30 years. (This is not a guaranteed return, but it is the likely return).

If you pay $20 a month on a decreasing critical illness cover, you will get $144,000 (estimated)

If you put $200 a month in the critical illness cover, you are likely to get a cash value at the end of 30 years of around $100,000 (plus or minus $10,000).

9 comments:

zhummmeng said...: You have complete control of policies.
They are separate, so one will not affect the other .
The protection remains the same through out unlike wholelife the protection value may reduce.
If you need cash there is no need to pay 6-8% interest rate for the loan like wholelife.
The return can be more than 5% and your investment is not dumped into the same pool with the rest.You tailor your portfolio and adjust as and when your circumstances change.The risk is lower than whole life and endowment.You see your "annual and special bonus" anytime you want.
You can increase or reduce your protection or investment separately
whenever you like it.
To sum it up.
High protection and high return
Flexibility
Lower risk
You are in control
"liquidity"
Protection up to 80 or 100 years old (depending on the company)

Can you get these benefits from whole life and endowment products?; July 13, 2008 11:10 AM
Aleena said...: I would like to know where I can buy critical illness cover without having to buy whole life insurance. Several agents I checked with said I have to buy life insurance first and get the critical illness cover as a rider. I read from your blog that it may not be the case. I wonder if it is too late for me to buy critical illness cover at age 42 and whether I would be charged a higher premium. Appreciate an advice.; July 13, 2008 10:08 PM
zhummmeng said...: Aleena, you can buy from NTUC but you have to be strong and careful not to yield to their persuasion. Ask for family insurance plan Living Benefit.
Remember to buy as much as 3-5 times your living expenses or salary. This is to cover treatment cost and replacement of your income.
For $150K sum assured ,insured till 65 and renewable to 80 years old the premium is about $100 a month.
I assume that you need to replace about $3000 per month for living expenses for 5 years.
You can contact Adrain Khiat at http://www.akhiat.blogspot.com
He is qualified and honest.
All the best; July 14, 2008 9:36 AM
meklavier said...: Let me begin by stating that I am not from the Financial Industry. It is just that I have seen too much bashing on insurance. And too much one sided argument of wholelife vs term.

To quote Zhummeng
"The protection remains the same through out unlike wholelife the protection value may reduce."

Sorry can you quote an example of the protection value of a wholelife insurance being reduced? A Wholelife have Non Guarantee portion. Death benefit will be Sum Assured + these revisionary bonus right? So Instead of reducing should it not be increasing?

Yes Term is cheap and good and the protection is level but have you taken into account inflation? today protect against 100K, 10 20 years down the road. your 100K worth how much? Medical Cost no need to rise up against inflation?; July 14, 2008 4:35 PM
zhummmeng said...: Meklavier, please take a look at the benefit illustration and look closely.Take the total death/protection benefit and less the cash value(which is yours) and that is what you are insured. You see it? Is it reduced? Is it smaller than the original guaranteed sum assured? Are you aware that you are also paying more (insurance cost is increasing)for less sum insured by certain age?
Buy term and invest the rest(BTITR), you have no such problem.
Sum assured and insurance cost remain constant throughout and cash value continues to increase and much faster than the wholelife. Do you get more for BTITR?
Meklavier, don't ask your agent, he or she won't tell you. Why should they when in the first place they didn't point out to you? They have to protect their rice bowl by deceit. Examine yourself or ask a third party.; July 14, 2008 7:30 PM
siewkhim said...: Dear Meklavier and Zhu,

Zhu is right. His explanation of the decreasing cover is right. You see the risk of the life insurance is bascally = (Sum Assured + Accrued Bonuses - Cash Value or the Reserve). So with the progress of time, the Cash Value will increase and if your bonuses are low, the risk to the life insurer reduces. So your protection cover actually reduces.

Big con-job eh?; July 15, 2008 5:37 PM
zhummmeng said...: Meklavier, have you checked your policy protection illustration?
I am not making up stories, right?
The situation is even worse with limited premium payment type of wholelife plans, eg take vivolife. This is real bad and perhaps the reason why they have added another side feature to counter the lack of it, ie guaranteed 125% of sum assured within the first 15 years. The question is why should you pay for it? You are entitled to it, right? Isn't it trying to tell you that it has an additional feature no one has? It is bullshit.; July 15, 2008 6:27 PM
Khiat Han Hwee Adrian said...: Hi Mr Tan,

Can I find out from you where we can get a Decreasing Term Critical Illnesses Cover policy? I really like to find out. Thanks.; July 16, 2008 1:52 AM
zhummmeng said...: Also wondering who sells CI decreasing term. It is interesting.; July 16, 2008 12:42 PM