Tan Kin Lian's Blog: Decreasing Term Assurance

Thursday, March 11, 2010

Decreasing Term Assurance

It is difficult to buy Decreasing Term Assurance in Singapore, as many life insurance companies are not keen to offer this product. I hope that this situation will change and some companies may sieze this market opportunity.

Let me explain the concept of Decreasing Term Assurance. Suppose you earn $4,000 a month and you need to set aside $2,000 for the upkeep of the family. You should choose a Term of 25 years, so that your youngest child will be independent at the end of that period. You will need a sum assured of $2,000 X 12 X 25 = $600,000. As each year passes, you need a lower cover, as the period of dependency reduces by one year. Your sum assured can reduce by $24,000 a year.

I assume that you have bought insurance to cover the mortgage of your home, so the home will be fully paid in the event of premature death. The $2,000 a month is adequate to cover the needs of the family.

If you buy insurance for $600,000 at age 30 for 25 years, and you wish to sum assured to remain level, you have to pay an annual premium (estimated) of $1,000. If you buy a Decreasing Term, the annual premium will reduce to $400 (or therabouts). By passing less on the premium, you can have more savings in a low cost fund for your future retirement.

Tan Kin Lian

12 comments:

Anonymous said...: Is there any Decreasing Term Assurance product being offered in singapore at all?; March 11, 2010 11:16 AM
Consultant said...: Dear all,

To illustrate Mr Tan's explanation, here are the BIs for DTA as well as Level Term. Using a male customer age 30 yrs old as example, and covering $600K for 25 years.

Annual premium for DTA is $506.50 and for level term is $829.15

Commission for such term plans is 10% of 1 year premium, so is $50.65 and $82.92 respectively. Now you know why nobody recommends these. My colleagues will say they rather become security guards than to sell such policies. keke!

In addition, I've also attached a BI for family income benefit, which Mr Tan had also talked about previously. It is good in the sense that the dependents will get monthly income stream, no need to worry how to manage lump-sum payout. Disadvantage is that there is no inflation protection. However the premium is low, $372.70 per year. So one way to incorporate inflation protection is to have higher cover, say $4K/mth instead of $2K/mth.

I also encourage customers to mix and match with group terms, so can lower their overall premium costs.

1. DTA $600K for 25yrs

2. Level term $600K for 25yrs

3. Family income benefit $2K/mth for 25yrs; March 11, 2010 11:58 AM
Anonymous said...: Kin Lian,

You simply ignore the real value of money in the future. $2,000 may be worth less than that.; March 11, 2010 1:45 PM
Tan Kin Lian said...: Reply to Consultant:

Insurance companies should make Term and Decreasing Term assurance available for people to buy directly.

If the agent sells the Term insruance, the commission should be higher, e.g. a total of 50% payable for 2 years. It should be much higher than just 10% (once off).; March 11, 2010 3:25 PM
Anonymous said...: Seriously if the insurance companies do offer it, i'm sure they will find a creative way to load their fees and charges into it.

Didn't they already invent all these ingenious financial products to rip us off?

And they can credit you, Mr Tan, for coming up with Decreasing Term in Singapore. You might want to add in some caveats when recommending this decreasing term.; March 11, 2010 4:10 PM
Consultant said...: Oops! My bad.

For ntuc fully commissioned agents i.e. those financial consultants and senior financial consultants, then their commission for selling Term, DTA etc under the Family Insurance Plan policy is 10% every year. That means if you continue to hold, that agent who sold you will receive 10% comm each year.

For those of us in biz centres, we are paid a salary, but need to meet monthly sales target such that whatever life insurance we sell, the total 1st year commission must be >= $4,000 for every month.

Using the above example of DTA with 1st year comm of $50, that means we need to sell 80 such policies every month just to hit minimum target. Which is nigh impossible. Even better, those of us who recommend group term such as LUV, Safra and HomeTeam get a big fat Zero to our targets.

In short, those of us focusing on Term, DTA, income benefit and group plans are just waiting to be fired after 2-3 months. In the meantime, talk cock & drink free coffee.; March 11, 2010 4:34 PM
Anonymous said...: I agree that since no insurance agents want to sell DTA or Term insurance they should be made available for direct buying . This should made the premium cheaper, right?
The insurance agents can sell whatever scam products they like but make term products available online or at the counter.
In US a lot of products without commission are available direct. Singapore should follow.
The existing insurance agents can be deployed to other industries as security guards,construction workers, toilet cleaners , fastfood joints and other places where they are now using FTs. The women can be maids , salesgirls, receptionist, beer girls or table cleaners at coffee shops or back as clerks or secretaries if they still wanted and of course some would prefer Geylang to maintain their lifestyle..This should reduce our dependence on foreign workers and therefore also reduce social ills.
MAS should look into this to help out the labour situation.At the end of the day only left are the competent and honest financial practitioners and not salesmen, conmen and women or product traffickers disguised as financial consultants.; March 11, 2010 4:45 PM
Tan Kin Lian said...: Reply to 1:45 PM

It is possible to design a DTA where the reducing sum assured in each year is adjusted by (say) 3% to allow for inflation. Most life insurance policies are not adjusted for inflation anyway, although the annual bonus can play a small part in compensating for inflation.; March 11, 2010 5:57 PM
Anonymous said...: Rising costs of ntuc income?
hmm, after checking through the internet, I keep coming across instances of splurging by ntuc income for their staff. Firstly on the ceo's facebook, and then even videos posted on youtube. It seems that the number of restaurant dinners, meetings at posh hotels, celebration gatherings on sentosa, holiday trips to vietnam, australia and upcoming beijing is just getting too overboard.

As what 1 concerned policyholder wrote in his blog, it seems that ntuc income staff are enjoying at policyholders' expense, considering the big cuts in bonuses and despite losses to the investment fund and being in a recession year.
Quite worrying for ntuc income policyholders if this trend keeps up.

Some things unconfirmed, but I guess where there's smoke, there should be some fire somewhere. Check out the bikini babes!

Celebration in siloso beach for being #1. Ehh, no bikini babes leh...

Check out the upcoming Beijing trip and see their itinerary. Whoa, sales champions, limousines, chic night club, pomp & splendour gala dinner, grand millennium hotel.; March 12, 2010 2:28 AM
Anonymous said...: More incentive means the salesmen get bolder to con CONNEDsumers.More money means more lies and tricks.
At whose expense?
Policyholders, lah!!!; March 12, 2010 9:15 AM
Anonymous said...: Your vivolife, revosave, the sail, and growth will suffer even more as they are already giving miserable return.
Don't wait until 20 years later to find out. Those who are responsible won't be around to answer to you. They are either dead or have left.
Have your policies checked NOW and decide to cancel or to keep.
If you have been mis-sold or misrepresented by your trusted but not qualified product peddling insurance agents, lodge with MAS and recover your losses before they too disappear.
If you really want to take up the case against them you will definitely find the evidence in the fact find forms. I guarantee you will becuase I know lies will leave a trail of tales.
All the best.; March 12, 2010 9:46 AM
Anonymous said...: You can get interesting articles on financial planning in CPF website,

http://www.imsavvy.sg; March 13, 2010 10:41 AM