Tan Kin Lian's Blog: Limited Pay Policy

Wednesday, July 07, 2010

Limited Pay Policy

Hi Sir,
I am a 25 years old individual contemplating on purchasing an insurance policy.
Limited pay life policy sounds attractive, in a sense, one is able to choose 5, 10, 20 or 25 years in premium payment and subsequently cover till age 65.
My financial consultant recommended me to opt for 20 years in premium payment.
However, I figured that 5 years in premium payment would make the life policy more cost effective
I was introduced to TM Legacy plus. Basic sum assured of $100,000.

Appreciate if you could advise on the
1. pros and cons of the policy
2. the no. of years i should choose for premium payment
3. whether i should take up the policy.

James

REPLY
Please read my book, Practical Guide on Financial planning (available at www.easysearch.sg/ishop). It tells you what to look out for. Most life insurance policies, including limited payment policies, give a poor return. It is better to buy Term Insurance.

You can read my FAQ on Benefit Illustration, http://www.easysearch.sg/Admin/File.aspx?id=57

8 comments:

Anonymous said...: Please don't fall into a trap. Limited or not doesn't get you out of the trap. In fact , you are worse off, meaning you pay more upfront instead of stretching longer and get HIGHER coverage and that is waht your agent recommended. He is concerned about coverage and NOT how fast or how soon you stop paying. Insurance is about coverage and you MUST have enough and NOT SAVING CRAPS or just have one.
ALL whole life , whether limited or not are scams and are very bad products.They deprive you of the correct coverage and they are NOT value for money.
People think limited payment WL stops paying after the term. This is not true. You don't stop paying. You may not be paying the premium but your cash value is paying and the cost of insurance keeps increasing and the company keeps getting paid by you from your cash value. That is why they call it wholelife. The company is paid wholelife and that is income and revenue to them. Did the agent tell you? No, they lied to you that you pay for limited period, right? This is the lie and untruth no insurance agent and the company will tell you. It is cheating, isn't it?
This is why insurance companies like to sell wholelife , limited payment WL products or their variations because they can cheat you and they provide whole life of revenue and income to them.The buyers are suckers.
Why buy these products when you can get better alternatives.
Consumers never learn.. they believe the conmen than the experts. Insurance agents are NOT insurance experts. they salesmen at best and worse they are conmen and women.(do you know why your agent recommended you the 20 year? It is better for you BUT also better for him or her because he or she earns bigger commission.)
Young man, don't waste your money and believe those talks about insurance by agents.They are out to con you for commission and NOT the best advice or your interest.; July 07, 2010 9:39 AM
Anonymous said...: Mr. Tan, you must be really tired repeating the same warning against buying wholelife, limited or not, products, again and again.
Consumers are easily conned.They think they know but they don't know that they don't know. They always consult the wrong CONsultant. Very often,whichever choice the consumers make the insurance agent wins, eg both sides of the coin are head.
Like the above case, whichever term this James makes , the winner is the agent.Maybe just lower or higher commission only.
Inevitably CONNEDsumers consult a thief or a wolf in sheep's clothing.
Indeed a sucker is born every minute and fast enough to feed the insurance agents' greed and dishonesty.; July 07, 2010 10:13 AM
Tan Kin Lian said...: Reply to 10:13 am

It is okay. The message has to be repeated, so that it can reach out to more people (who may not have read the earlier message).

The message is also for the insurance company to introduce new products that have lower "effect of deduction", and to provide a better yield for the policyholders.; July 07, 2010 10:26 AM
Anonymous said...: If you are recommended by agents / consultants / financial planners etc to buy ANY insurance that has cash value or "savings" or cash-backs --- simple advise is DON'T! These are all participating insurance plans (par plans) that give VERY lousy value. Be prepared to receive only 2%pa returns even if you hold for 30 years. And if you conk off before that, the insurance payout will barely feed your family with porridge & salted vegetables.

You should do the following first:-
1a. Get a medical Shield plan. Don't bother with the riders to cover deductible or co-insurance.

1b. At the same time, develop savings discipline for yourself and save 12 months worth of salary. This is your Emergency cash savings -- not for buying car or going holiday or buy flat or wedding or etc etc... Just put this emergency cash into plain vanilla savings deposits, money market funds, and some into no-penalty FDs.

2. If you have dependants e.g. elderly parents or children or non-working spouse, then get term insurance with sum assured of 5 to 10 times your annual salary. Get group term insurance first if possible. The expenses for such term insurance will be less than 2% or even 1% of your salary.

3. If you have no dependants, then really no necessity for life insurance. If you kia-su or earning more than enuf, then may consider things like Personal Accident insurance (very cheap) or standalone Critical Illness insurance (expensive even for group plans like Safra or HomeTeam), or Disability Income insurance (also expensive).

4. Educate yourself on long-term investing. Read widely and always read critically. Analyse & think deep. Many good sources available in library and online. TKL blog is just 1 example.
An easy method (some may say dumbo method) is simply buy STI ETF on a fixed monthly basis. If your monthly amount is too small to be economical, then you can accumulate and invest every 2 months or 3 months. You can also make use of Philips Securities "Sharebuilder Plan" to invest smaller amounts economically on monthly basis. You should aim to invest 20% of your salary over the long term for retirement.
If you dollar-cost-average into a low-cost investment vehicle like the STI ETF over 20 to 30 years, you will definitely beat the returns of wholelife or endowment plans.

5. Only AFTER your have setup all the above, and you STILL feel itchy and have too much money left, then and only then, you can consider putting some money into things like endowments or wholelife. Maybe if you feel like helping your relative or friend who needs to hit monthly sales targets or something.; July 07, 2010 12:39 PM
Anonymous said...: "5. Only AFTER your have setup all the above, and you STILL feel itchy and have too much money left, then and only then, you can consider putting some money into things like endowments or wholelife. Maybe if you feel like helping your relative or friend who needs to hit monthly sales targets or something."

Anon July 07, 2010 12:39 PM
---------------------------

I disagree with your item .
Why donate it to insurance agents/conmen who DON"T deserve it?
Donate it to charity. To orphaned children whose parents kenna conned by insurance agents; to single mother whose husband kenna conned by insurance agents who sold them $20K or $30K whole life or limited payment whole life instead of $500K or more whihc the premium can buy. That is why their spouse and kids have to depend on charity.
To the writer James, whatever the title of the insurance agent his or her objective is to SELL you a product that can give them the HIGHEST commission. Wholelife or limited payment or endwoment or anticipate or regular ILPs all give high commission. These salesmen or conmen only sell these products.
James, ask the agent why this product? also ask how much commission does this product pay him or her?; July 07, 2010 1:18 PM
Anonymous said...: Below is adapted from Adrain's blog.

"I recently heard about a case of a young and single gentleman with a salary of $2,800 and expenses of $1,900 being recommended by an FA rep of a $800/mth ILP and a higher cost term insurance of $100/mth. This adviser squeeze him dry to nearly $0 personal savings, citing that he can stop his ILP anytime without highlighting the cost of liquidity and without considering the person short and mid term financial needs. When he was advised to stop this high cost ILP, he said, “it should be okay, my adviser is a well known MDRT Life member. I trust him!” My jaw dropped on hearing that…"

This is the type of insurance agents you should beware. They got the title, MDRT or COT or TOT not for nothing. They are seasoned experienced thieves(see last letter of the title).They are not going to sell something that meets your needs but definitely products that meet their own needs, ie products with high commission. This is how they got those titles by selling this type of products ONLY.Meeting your needs is NEVER in their mind. These agents love James because whatever plan or term James chooses the commission is still high. They just execute James's wish and it is not wrong. James is the planner and adviser unto himself.These agents execute for him most willingly by just filling up the forms on his behalf without risking their license if anything goes wrong.Very lucrative, right? no need to spend time doing unnecessary fact find and analysis and a few meetings and the agent gets a fat commission. On second thought, James should ask a steep discount of the first year premium , eg 80%, from the agent for he didn't do anything worth the commission.
James , if this agent has MDRT on his name card avoid him straightaway . He is no body but a thief in disguise.; July 07, 2010 2:53 PM
Anonymous said...: James,
you have no dependent you don't need death insurance. Get yourself a $200K 10 years critical illness renewable term for as low as $60 a month and invest the rest of the money and a H&S medical using your CPF. Invest the money for your marraige , house deposit and other goals.Have a plan and don't DIY if you do not know.; July 07, 2010 4:41 PM
hosingping said...: I have read one article on STI ETF. saying if invest low sum monthly, the mangement fees will be alot more exp than you put more savings in the STI ETF monthly. is it true.; July 07, 2010 5:19 PM