Hi Mr Tan,
I have read your article on not buying Critical illness insurance. Recently my insurance agent has been advising me to embark on a 15 year limited Critical illness Insurance of coverage 100K, premium of 4.6k per year. I will be paying only for 15 yr, but the coverage will still continue. The return is 131.5k (total premium paid is 70.3K) after 30 yrs should I surrender then.
I have told my agent that Medishield or private shield should be enough to cover should a critical illness strike, this is what he said:
1) Shield covers hospitalization but does not cover all kind of medications as well as recuperative treatments, for eg.TCM, hospice care, medical equipment, and all miscellenous charges. For eg, it does not cover shots of Herceptin which cost $4k per shot to kill cancer cell. This shot need to be administer 17 times, once every 3 weeks to tackle breasts cancer.
2) Many long term illnesses like heart attack, stroke, paralysis, brain diseases total permanent disability and cancers require long term medication and aftercare. These if not hospitalised will never be taken care by Shield plans.
3) Shield requires co-insurance. Co-insurance can be a huge amount. For eg, chemotherapy is charged on a package by doctors depending on different conditions. On avg, it comes in 8, 12, 16,24 cycles which avg cost around $25,000 -$60,000 over a 2-3 month period. A min 10% co-insurance will be at least $2500 to $6000 every 3 months. If chemo treatments consistently needed, they can come up to more than 32K -50K per year just on co-insurance and misc expenses.
I would really like to have your comments on this.
REPLY
If you invest $4,600 for 15 years in a low cost investment fund and is able to earn 5% p.a. the accumulated sum at the end of 15 years is $104,000 and at end of 30 years is $216,000. The chance of making a critical illness claim in 30 years is likely to be less than 10% and this is likely to occur towards the end of this period (when you get older). For these people, the accumulated sum may be more than the payout under the critical illness policy.
The chance of surviving 30 years without a claim is more than 90%. For these people, they will get the projected sum of $131,000 and lose $75,000 (compared to $216,000). Both figures are not guaranteed.
The people who benefit from a critical illness policy are those who contracted it within the first 15 years, and the chance is small. I would prefer to take this chance than to have a 90% chance of losing out on one third of the accumulated savings.
It is better to buy a rider to cover critical illness for 15 years (and you can get it from a policy under SAFRA, for example) and invest your savings in a low cost investment fund., If this cover is not available at a low cost, it is better to take the risk of not having a criticial illness cover.
You can buy at least $250K for less than $1000 yearly and covered for 20 years with renewal guarantee till 85 years old.
ReplyDeleteThe remaining $3.6K can be invested in a higher risk portfolio returning you at least 7% and over 30 years the absolute value can be $360000. Even if the return is as rotten as 2% the amount you get after 30 years is still $150K better than the scam limited critical illness plan.
On top of that the above strategy does not have all the downsides of wholelife.
Wholelife's disadvantages are
1.risky
2.low return
3. not enough coverage( for $250K you may have to pay $10K premium..and $250K is the amount you likely need it)
4.there is no premium holiday if you have financial problem )
5.you can't use cash value but to borrow at an interest rate of between 5.5% to 8%.
6. if you borrow that is the end of this policy becuase you will be FOREVER INDEBTED and it is better to terminate than making your insurer rich..and they will say I LOVE YOU FOR BORROWING.
7. cash value is NOT your money until you terminate it..Ridiculous, right? when your agent conned you that it is a saving plan besides protection.. it is half truth only.
8.Inflexible...
9. a waste of your resources
10. a perfect scam.
hello mr tan,
ReplyDeletemuch as i do not disagree with the view that we are better off investing in a low cost etf ourselves versus putting the money into a product that is disadvantageous to us, there's something that we need to consider if the individual is the one "managing" the investment himself/herself.
and that is the assumption of discipline. we are assuming that the individual puts in the invesment amt (whether monthly, annually or whatever) rain or shine, whether the market is up or down.
when we are handling the investment ourselves my fear is that there will be some people who will be swayed by market movements. when the market is on a downtrend, there may be resistance to continue with the regular investments as what they see is a falling value of their investment. so they may end up only investing during the "highs" and not the "lows" which will skew their investment returns.
and if the investment is made as lump sum, and made during market high -- what happens when the market comes down?
i am just offering another view. i would love to hear the responses of your readers and yourself. thank you.
If someone does not have the discipline to save regularly, they should not put their money in a life insurance policy, as he or she will incur a large loss on the termination of the contract.
ReplyDeleteIf someone is educated about a low cost investment fund, this person is likely to save regularly and watch the savings grow.
It is easy to save regularly. Just arrange a GIRO to deduct this sum monthly from the bank account.
If he or she has to withdraw the savings for urgent need, there is no need to borrow the money from credit card or policy loan and pay a high rate of interest.
The most urgent task is to educate people on savings and the appropriate investments.
i don't believe what insurance agents claim - they can promise whatever it takes to make one signup. Buy Term Insurance, and the rest invested in oneself (e.g. education, health etc) - to be employed gainfully and in reasonably health beats heaving all kinds of insurance.
ReplyDeleteDiscipline is NOT in the product it is in YOU.
ReplyDeleteDo you know how many whoelife policies terminated over the years?
1st 2 years...... about 50%
1st 7 years........about 70%
after the 7th year to 15th year...another 30%
by the 20th -25th year only left 10%
when policyholders hit 65years old ......ONLY 1% went through this trashhole or threshold .
Tell me about discipline that whoelife gives.
It is YOU , YOUR GOAL that drives you....even CPF locked in chain can still be broken through.
Don't be fooled by this falsehood about wholelife giving you this discipline... this is the bullshit lie perpetrated by insurance agents in cahoot with their company. Consumers have conned for too long. Consumers should be spelled CONNEDsumers.
Regarding discipline for investments, frankly, if someone is not disciplined enough, he/she would have problems servicing $200 to $400 a month paying for insurance premiums. And if this person has to resort to borrowing the cash value at 5.5% to 6.5%, then it will be even worse for the insurance policy and for the person.
ReplyDeleteI have encountered so many policyholders enquiring about terminating their wholelife because they were sweet-talked into buying as much as they could a few years ago, and now cannot afford to continue paying. About 50% not even breakeven and the rest only just barely breakeven.
Frankly if you still really want CI cover, just buy SAFRA, or HomeTeam, or Aviva SAF. These are group term policies with both level term as well as CI cover. Much lower premiums. Save the difference for your future.
Of course, insurance agents and RMs get $0.00 commission for recommending these. Therefore chances of them providing you this advice is also 0.00%
I think the premium for CI cover from Aviva SAF increases exponentially with age.
ReplyDeleteALL product premium increases with age and faster when the insured is at older.
ReplyDeleteIn wholelife the mortality charge increases with age although not the premium. This is the non transparency
and non disclosure which MAS wants insurers to disclose in the BI soon.
This is also the increase insurance agents don't want you to know. They only tell you half truth when they tell you the premium remains the same through out. If telling half truth is also telling a lie all insurance agents are cheats.
what about non-safra members? what is good term policy?
ReplyDelete