Dear Mr. Tan
I am considering terminating the Living Policy for myself and my husband and buying term insurance instead.
About the effect of deduction, wow, I really didn't know about that until you mentioned it in your blog. And I read again our policies, they really take away such big amount from us! Is this the standard practise? Do other insurance companies do this also?
REPLY
It is true that the Living policy takes away a lot of the premium. But the coverage is wider than a Term policy (unless you buy a Term policy that covers the critical illness as well).
My advice on buying Term insurance applies to a new policy (and not to the termination of an existing policy). Usually, after a policy is taken, I advise people to continue the policy as they have already incurred the high initial expenses. I have two Living policies on my own life as well, which I am continuing.
If you wish to terminate an existing policy, you should look at the yield over the next 5 years. This is explained in this FAQ:
http://www.tankinlian.com/faq/exist.html
The effect of deduction for similar policies sold by other insurance companies is likely to be higher.
I disagree that you should keep the living wholelife policy. Terminate and switch to term and increase your cover if your needs warrant that.There may appear that you are paying high premium for term but if you keep the WL living you are also paying about the same cost (the mortality cost) except you are not told that it has gone up.
ReplyDeleteMore importantly buying term means you are taking charge and you are free to invest the rest according to your risk tolerance and goals unlike in the WL your money is put into the same pool with rest. Your goal is ignored and the return is stifled because of this.
Buying term is freedom to decide how much and when to terminate without much consideration. Protection is higher and yet cheap and return on your money is higher because you can tailor your portfolio mix.
Consult an honest and competent adviser to help you but never never use an insurance salesman or a salesman with title changed or disguised as consultant.
Insurance plans should be treated as disposable, that is, have it when you have a specific need to insure against it and when the need is no longer there throw it away.Bear in mind that insurance is not free.The longer you hold the more you pay.Also remember that it is not the only need you have.Insurance salesmen make you think that insurance, especailly wholelife plans, is a cure all product. This is the snake oil salesman modus aperandi.
ReplyDeleteYou have to balance so that you don't end up "asset rich cash poor" or 'worth more dead than alive". How would you know that you have a "balanced' of goals? Financial planning is what you should do. Key is PLANNING. Without planning you are either skewed towards insurance or investment depending on who you see more often, the insurance salesman or the investment adviser.
Get a financial planner to help you with this.He is trained in holistic planning.