Tuesday, September 16, 2008

Term insurance - is the premium proportional?

Dear Mr. Tan,
Thank you so much for putting so much useful information on your website. I almost bought a whole life insurance policy from my financial planner--but luckily thanks to finding your site I realized that it doesn't really make sense to do so. I'm in the process of reading every article in your website.

I have a question about the following page on your website: http://www.tankinlian.com/faq/term.html

In it you stated that the annual premium for $100 000, 30-year old male, covered for 30 years, are $305 for level, and $115 for decreasing.

My question is: how linear is this guideline? Does it mean that to get if the sum is $200 000, the premium should be $610 and $230, respectively? Does it get cheaper if the sum assured is more than 1 million? Also, what if I want the coverage to last 35 years (until I'm 67), instead of 30 years?

Thank you very much in advance, and thanks again for your blog and your website.

REPLY
Usually, the premium rate is in straight proportion to the sum assured. However, it depends on the practice of each insurance company. It is best to ask a few insurance companies to quote you the rates for various sum assured.

Here are some companies that you can call
http://www.tankinlian.com/faq/termd.html
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3 comments:

zhummmeng said...

Remember insurance is protection and nothing else and it is to protect against a certain event at a certain time and if it is no longer there you can cancel it.
Therefore the best approach is to buy what you need at the point of time and for certain duration.
You don't have to lock in the premium. Example you can lock in for a guaranteed renewable term and decide after the expiry of the term to continue if your need is still there . You can reduce the sum assured too.
Remember insurance is for this purpose and not those cash value and whole life craps promoted by insurance agents who are only interested in the high commission.
Planning is important and it is key to the success of your financial life.
Get a an honest and competent adviser and not an insurance agent or agent disguised as financial consultant, senior or executive they are all scammers.

September 16, 2008 9:56 AM
Unknown said...

To answer your question about it the premium is linear, sometimes premiums are "banded". This means that the rate decreases for a higher face amount.

For example:

For $100,000 - $500,000: Rate per thousand = 3.05. Therefore a premium for $100,000 is $305 (3.05 x 100,000 / 1,000). For $500,000 the premuium is $1,525 ($500,000 x 3.05 / 1,000).

For the next band, say $500,001 to $1,000,000 the rate per thousand is 2.75. Then for $500,001 the premium is $1,375 ($500,001 x 2.75 / 1,000).

The reason for the decrease with the higher sum assured, is that fixed expenses remain the same.

Agents should know if the product is "banded" and what the band levels are.

September 16, 2008 1:44 PM
zhummmeng said...

Insurance agents don't sell term and they only sell whole life and I beleive there is also a band on premium rate for WL as sum assured increases.
The insurance agents are only interested in the commission and they know is linear, the higher the premium the bigger is the commission.
They try to sell bigger premium policy and they don't care whether the customers can afford or not.

September 16, 2008 6:09 PM

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