1. How much life insurance do I need?
It depends on your personal circumstances. If you have dependents, you should aim to insure for 5 to 10 years of your earnings. If you have accumulated savings, the insurance cover can be reduced by this amount.
For example, if you earn $40,000 a year, you should have life insurance for $200,000 to $400,000. If you have accumulated savings of $50,000, this can be reduced from the amount of your insurance.
As a minimum, you should insure for 5 years of earning. If you are able to afford it, you can increase your coverage to 10 years of earning.
The sum assured is payable on death and permanent total disability.
2. What type of life insurance should I buy?
You should buy decreasing term insurance that covers you up to your retirement age, say 65 years.
If you are now 35 years old, you can buy a decreasing term insurance to cover you for 30 years.
If your sum assured is $300,000, you will be covered for $300,000 during the first year. The sum assured will reduce by $10,000 for each subsequent year, until it disappears completely at the end of 30 years.
The reduction in the sum assured each year will be offset by your savings for the year. As your savings grows, you need less coverage for your life insurance.
The premium that you pay for decreasing term insurance is about 50% of the cost of level term insurance. It is about 20% of the cost of a whole life insurance.
By paying a lower premium for your decreasing term insurance, you have more money to save in a low cost investment fund to earn a higher return for your future needs.
3. Do I need medical insurance?
If your employer covers your medical expenses, you do not need any personal medical insurance.
If you wish to buy a personal insurance now, so that you are assured of continuing coverage after your retire from work, you should choose a low cost Medishield plan provided by the Central Provident Fund.
There are many Shield plans in the market. They cover different classes of wards in restructured and private hospitals.
In selecting your plan, you should consider the total lifetime cost. You should add the premium for the various ages from now until you reach age 85 years. As the premium rate increases with age, you must take the higher cost into account, when you select your plan.
There is no need for you to buy an expensive plan, unless you have a high income. If you enter into a subsidised ward, your medical expenses will be quite affordable and can be covered by Medishield or a lower priced private Shield plan.
Do not spend too much premium on your Shield plan when you are young. You need the savings to cover your insurance premium and medical expenses when you grow old.
The Shield plan has a Deductible and a co-insurance portion, which have to be paid by you. Some insurance company offer a rider to cover these items. As the amounts are not large, you do not need to buy the rider. You can pay them from your Medisave account.
4. How much should I spend on insurance?
You should spend not more than 2% of your earnings on the life and medical insurance on your life. If you include your family, you should spend not more than 3% of your earnings.
By spending less on insurance, you can set aside more savings for your retirement. This should be 10% to 15% of your earnings.
To demonstrate to those wholelife die hards to let them see how idioitic they have been , and that they have been taken a ride by the greedy and unethical agents.
ReplyDeleteAssuming you are a 30 year old male and you have been approached by
a so called qualified consultant from NTUC and you have been recommended a vivolife. "Analysis" has revealed that you need a 10 year limited term payment for $100K sum assured. The premium comes to about $4250 yearly. The cash value at age 60 is $99,400 and at age 65 is $120,000.
The same man consults an adviser from a FA company for same concern.
The adviser recommends a term living of $200K sum assured after considering his needs and financial circumstances.The plan covers CI till 65 years with option to renew to 90 years old but with increased premium.The premium comes to $1080 yearly.
Assuming this man can afford the premium of $4250 . You show him how much he is better off in term of protection and return by buying a term and invest the rest(BTITR).
If he buys a term of sum assured of $200K costing him $1080 he will leave $3170 a year for investing regularly. Assuming a rate of return of 6%( close 2 eyes you can get) his regular investing of $3170
will give him $250,000 at age 60 and at age 65 his cash value is $350,000.
You see the stark difference in return and protection? What if the return is 7% or 8%? These are not far fetched figures. A good qualified investment adviser can get you these returns, of course not an insurance salesman or whatever name. They only want fast return for themselves and not yours.
There you are,BTITR versus wholelife. Which do you think gives better value for money in term of protection and return?
Now, you wholelife diehards, it is time you jog and rake your brain to consciousness to see what your so called beloved sincere qualified financial consultants have been doing to your financial life.If you don't wake up now, your family and loved ones are at risk , money no enough, when you pass on or you have money no enough when you wake up one morning to begin your golden years.
Still, the choice is yours.
I would like to make a correction in my earlier posting on computation of the cash values relating to (BTITR)investment. I was wrong to compute the cash value based on 30 and 35 years of continual contributions. They should be 10 years of contribution and then allowed to compound for the next 20 and 25 years less the cost of insurance attributable to the $200K sum assured for the same periods.
ReplyDeleteThe cash value figures should read $112,400 at age 60 and $152,000 at age 65 instead of $250,000 and $350,000 respectively.
I hope your readers are not misled.
I have to disagree with your recommendations to buy decreasing term insurance. It's a waste of money. And it's absurd to think that people are saving $10,000 annually in an easily accessible account that would allow them to get it without penalties.
ReplyDeleteLevel premium term life insurance is so inexpensive right now that it doesn't make sense to buy a policy that decreases while the cost remains the same.
For instance a healthy 40 year old male non smoker can get a 20 year level term life insurance policy with a $500,000 death benefit for only $995 per year.
There are several points that I disagree with and find it too tedious to argue here.
ReplyDeleteWhat I want to highlight is everyone needs is different. We cannot use a number or percentage to gauge ones needs. There are both quantitative and qualitative data during the fact-finding process.
we'll there could be somehow a missing information here. have you key in the inflation rate that goes with the plan? your 1 million insurance diminishes its value of 1 million after 5, 10, or 15 years.
ReplyDelete