Many agent advice consumers that they need to buy life insurance for the whole of life. This is bad advice.
The consumer only need to buy life insurance up to the time that their youngest child reaches age 25. By that time, all the children would have been financially independent. This is likely to be age 60 or 65 (for those who have their children at an older age).
There is no need for life insurance after age 65. If the consumer had been prudent in having regular saving during their working life, they are likely to have sufficient savings to take care of their retirement needs. This could amount $250,000 for an ordinary wage earner or more for a high income earner. With this savings, there is no need for life insurance cover.
The agent likes to advice consumers to buy the most expensive insurance policy, as their commission is directly linked to the amount of premium. They can earn between 12 to 24 months of the savings. If you save $300 a month, you may lose $7,200 of your savings to pay commission to the agent or the expenses and profit of the insurance company. This is a lot of money to give away, especially as the saving plan does not give you an attractive return (compared to saving in an low cost unit trust) and imposes a heavy penalty if the policy is terminated prematurely.
You should have your savings separately and buy Term Insurance or Family Income Benefit for 25 years or up to age 60 years (if this is shorter). This is adequate for most people. But you can consider your own financial situation to make a suitable decision. Do not be misled by an insurance agent or financial planner who is only interested in earning a higher commission.
Tan Kin lian
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