Friday, July 31, 2009

Features of life insurance policies

Hi Mr Tan,
Can you tell me what are the features for these insurance policies?
1) Limited pyament whole life insurance
2) Regular prenium investment-linked policies
3) Anticipated Endowment Insurance


REPLY
I will only give a brief explanation here. Please search Google for a more detailed explanation.

A limited payment whole life policy requires you to pay premium for a certain number of years and be insured for the whole of life. If you pay premium for a shorter period, the annual premium is higher.

A regular premium investment linked policy requires you to pay a regular premium over many years. The premium is invested in an investment fund. You will get the value of the invested units.

An anticipated endowment policy pays the maturity benefit in installments during the term. For example, if you insure for 50,000 over 20 years under an anticipated endowment policy, the $50,000 is paid to you in installments over the 20 years. The annual premium for an anticipated endowment policy is much higher than an ordinary endowment policy.

A life insurance policy may take away as much as two years of your premium to pay commission to the agent. This is too much to be taken away. If you pay a premium of $300 a month, two years of premium amount to $7,200. This is the money taken away from you to pay the agent.

I advise people not to buy all of these types of insurance policies, including critical illness policy, which pays high commission. It is all right to buy term insurance policy (where the premium is low) or a single premium policy, where the commisison is less than 3%.

All the best.

5 comments:

Anonymous said...

To follow up: for those who locked in to Whole Life Policy. What is your advice then? Cash out when the cash value breakeven?

Anonymous said...

I have a INCOME WL policy bought when I just started working about 20 years ago. It has broke even. I intend to continue paying since I am still working and need that protection.
I agree that term insurance is more cost effective (relatively small cost with greater coverage) but that was not offered to me during that time.
I intend to convert it into an annuity or surrender it when I don't need the protection anymore.

starlight

Anonymous said...

are there any term insurance that will cover major illness for whole life?

Seth said...

Hi Mr. Tan Kin Lian, I am a 21-year-old who has so far respected your efforts in trying to fight for investors who were mis-sold on the minibonds.

Reading this, however, makes me wonder why you are so against financial consultants earning their keep. As a young and rather new financial planner myself, I do not understand why you feel people should purchase policies based on how much, or rather how little, commission an agent makes instead of how suitable the product is for oneself.

I can't speak for everyone in this industry, but most of us are just trying to earn an honest day's pay with an honest day's work. Personally, I feel that a win-win situation in my job is very achievable, in which the client picks up a policy suitable for himself, and I can earn a salary to keep myself afloat.

Financialist said...

In response to "are there any term insurance that will cover major illness for whole life?"

Yes, major illness rider (options) can be added to term life (level premium and decreasing premium) plans. AXA, Aviva, NTUC Income all offer these at competitive rates.

Please seek out qualified financial adviser before committing your hard earned dollars.

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