Saturday, August 16, 2008

Buy Term and Invest the Savings

Hi Mr Tan,
After reading your reply, I decided not to rush into buying a policy. After all the research I had done, I am still kind of lost. I do not know which policy suit me better for my age and my situation.

For your information, I am 20 this year, fresh diploma graduate who had just started my 1st career. I did not buy any insurance previously. Hence this will be the 1st I am buying for myself. Being the bread winner of my family, I think buying an insurance will be safer for me and my family. To me, my concern will be life protection plus some investment which will make my saving grow.

Initially I thought that buying a long term saving plan eg 25years, will be better. I was told that by an insurance company that it will double up by return. The sum of money return was very attractive. However I understand it tied up my money. In case of emergency, I might have financially difficulties. Hence I thought of buying ILP.

However I understand that ILP Will have high charges involved after reading your blog. As u mentioned, by buying a term insurance or decreasing term insurance will be cheaper. Then invest the money in some other investment funds such as uni-trust, bonds, equities etc. The problem is I do not know anything about the share market. I wonder if I am able to invest my money into the right funds. Some banks who I visited, or 1 of the insurance company who I spoke to, offered me regular saving plans or ILP.

No one offered term insurance to me yet. I understand that term insurance had no cash value. Hence I am worry, if I bought a term insurance but end up I do not know how to invest on the investment funds, I might end up buying another ILP. Where do you think I can get more informations about those investment funds? Or is there any ILP or regular saving plan which offer good return with reasonable charges in the market now?

In your advice, is there anything in particular which I should be take note/ beware of before buying any policy? What do you recommend I should do? I also had several doubts which I think maybe you can clarify for me.

1) All policies, regardless whether from bank or insurances companies have yearly policy fee unless otherwise stated?
2) The policy fee had been calculated into our mthly premium or is there additional charges?
3) Does fixed deposit earn better interest and give more flexibility than ILP/saving plan? Appreciate for your time and patient.Hope to hear from you soon.

Please read these FAQ:


Crazy Aries said...

my friend who is 25, just starting to work get the following proposal from ntuc income business centre recently.

- i-term SA $200K & Living rider SA $100K for 25 years,monthly premium about $40/-

- ID7 investing $100/mth.

- Personal Accident Plan SA $100K.

- Enhanced Incomeshield Basic (or stay with Medishield)

zhummmeng said...

You said you are a bread winner, meaning your dependents are your parents and siblings.You can start with a $250K(guess-estimate) 10 year renewable term for as low as $30 for peace of mind in case you leave them behind;$100K for critical illness for another $30 and $30 for a $2000 per month disability income.For less than $100 per month you have all major risks covered. H&S will come from your CPF medishield.
Whatever left of the money you want to save put it into a regular saving plan like NTUC ID7 for or any similar plan with very low charges. REMEMBER , DON"T buy whole life and endowment plan. You will be ruined for life. You wouldn't have enough coverage and protection
and your saving will be condemned.
You can see your needs, right? So much and withe term you can take care of them with low premium and PEACE of MIND.

Wayne said...

For Term Insurance, you may wish to refer to:

For Buy Term Invest the Rest or BTITR, you may wish to refer to:

For investing, If one has the tendency to check his portfolio to the extend of every day or even every hour without constantly worrying, he is probably not suitable for investing.

Yesterday I had lunch with someone from Motley Fool(UK), and we both agreed that BTITR is a better way than whole life insurance, but provided the investor has the DISCIPLINE to really invest and not spend the rest, and that he can be mentally prepared to ride through the course of market downturn (without much worry) and let dollar-cost averaging does its work, in the long term process.

zhummmeng said...

Hi, young man,
i checked with my friend at FA that the premiums I gave earleir should be much lower. it means you have more money to invest.
$250K sum assured for dependents' need for 10 year renewable term is $16 per month
$100K critical illness for 10 year renewable term is $10 per month.
$2000 monthly payout till 65 years old for disability income is $25. You need only to spend $51 a month on insurance and you have ALL your risks covered.Isn't this real peace of mind for you? This is for a young man with responsibility.
Yes , you may ask , why renewable term? This is most optimal way to address your needs NOW, no need to lock in. The renewable term means you are assured of renewal and insurability.You don't need to lock in .Review your needs as time goes by.
You mentioned that you wanted to buy a saving that doubles your money in 25 years time. My reply is that plan is a DUMB PLAN. You will be getting less than 3% return and it is a LOSS in real term due to inflation which might be 3-4% in the long term. So is it dumb?
Worse,when you need money for emergency you need to borrow your OWN money and pay interest on your own money to the company. Isn't dumb again?
Save and invest in regular ILP to earn 6-8% is better , isn't it? You can cash out whenever you need money. There is a lot of flexibility, no lock in. You can increase your saving amount.
Worry about charges? invest in ID7 regular ILP plan from NTUC. ID7 is the best at the moment, in Singapore and in Batam,. Don't confuse with ID2 which has 45% charges and is SOLD BY the so called 'financial consultants'. Don't fall into their hands or you will be a goner.Buy ID7 directly from the Business Centre. Again , warning-- don't let them change your mind.
All the best , young man.. if you have doubts tell us your problems here , in Mr. Tan's blog.

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