Many consumers have difficulty in getting an attractive rate for term insurance and critical illness cover. Some insurance agents quote a high premium rate for term insurance (more than 5 times of the actual cost) and then try to convince the customer to buy a high cost policy which pays an attractive commission to the agent. The high cost policy includes the investment-linked plan (ILP) and the limited payment policy (i.e. covers whole of life with premium payable for 20 years).
Consumers can refer to the SAF group insurance policy (term insruance and critical illness cover) to get a benchmark for the premium rate for these covers. You can refer to the documents uploaded here: http://www.easysearch.sg/Links.aspx?CatID=11
If you are eligible, you can join the SAF group insurance scheme. For example, you pay a monthly premium of $38.40 to get term insurance up to age 65 of $300,000. You pay $10 a month to get critical illness cover for $100,000 up to age 45. (You do not need to insure more than $100,000 or beyond age 45).
If you are not eligible, you can use the premium rate as the benchmark for what you need to pay for your individual cover. You may have to pay a higher rate, but it should be within 30% of the SAF rate. If it is higher, the policy is too expensive and should be avoided.
Tan Kin Lian
Read Practical Guide on Financial Planning
Mr Tan, why do you recommend not extending CI cover beyond 100k or beyond age 45?
ReplyDeleteHi Mr Tan,
ReplyDeleteI have one group insurance under the SAF scheme. The rate is quite reasonable but Mr Tan, is this the only benchmark?
Reply to 11;17 AM
ReplyDeleteThis is a good benchmark. YOu only need one benchmark to compare with any similar policy that you have been offered.
Reply to 10:58 AM
ReplyDeleteBeyond 45, the premium rate increased by almost 4 times. It is not worth paying such a high rate. By that time, you should have accumulated sufficient savings (if you have invested your savings wisely) and it can replace the need for insurance.
Remember, when you insure, you have to pay almost twice of the true cost of insurance (to cover the expenses and profit margin). If you can take your own risk through self-insurance, i.e. with sufficient savings, it is better.
$100,000 is more than sufficient to cover for the loss of income during critical illness. The cost of medical expenses can be covered under Medishield.
I would have to disgree with Mr TKL.
ReplyDelete$100k may not be sufficient depending on your lifestyle and annual income.
A better indicator would be a 5-10x of you annual income.
Insurance agents always like to get people to over-buy insurance. The more, the better, as their commission depends on how much premium you pay.
ReplyDeleteIf you have already insrued 5 to 10 years of your income to be payable on death, you do not need another 5 to 10 years on critical illness.
A person is seriously ill is likely to die, so the term insruance will be paying the full sum. The critical illness cover is to replace income for 1 or 2 years. $100,000 is more than sufficient for most people.
The high income earners do not need my advice, as they can afford to pay for the financial advisers.
High income earners also do not need insurance!
ReplyDeleteThey have so much earning power that the insurers cannot afford to replace their income!
I do not think people like Warren Buffet or even our own high net worth people need insurance.. in fact, the insurers probably would like these people to invest their money in the company!
Hi Mr Tan, one of the fine prints of the SAF group term insurance states that the policy will be automatically terminated if we have made an admissible claim of 50% or more.
ReplyDeleteShould this be cause for concern?