Should you buy life insurance at a younger age to enjoy a lower premium rate?
This is the argument put forward by insurance agents to convince customers to put aside a large part of their savings towards a life insurance policy. This reasoning is flawed, as it fails to address the following key points:
a) Is the insurance necessary in the first place?
b) Is the consumer buying the right type of insurance?
c) Is the consumer paying the right price for the insurance cover?
In most cases, the answer to these questions is "no". The consumer is buying an insurance that is not needed, is buying the wrong type of insurance, and is paying a high cost for the cover.
What then, is the right type of insurance?
Life insurance is needed when a person has financial commitments, e.g. a family with dependent children, and needs to provide for their financial security in the event of premature death. A young person who is not yet married does not have this commitment. The priority is to accumulate and invest savings that may be needed in the future.
What about buying life insurance early to enjoy a lower premium rate? It depends on the type of insurance that is bought. For term insurance, which covers death from all causes, the premium rate is quite flat for people below age 55, which is the period that insurance is really needed. After that age, the consumer should have accumulated sufficient savings with a proper financial plan, and does not need to rely on insurance.
Life insurance should be used to protect against premature death, and should not be used as a form of savings and investments - unless it is able to provide a yield that is comparable to other types of investments. In most cases, the yield is terribly low!
At the younger ages, the biggest risk is premature death caused by accidents. The premium rate for an accident insurance is flat, regardless of age.
It does make sense to get a life insurance policy, especially a term insurance policy, at an early age as part of your financial plan. But, make sure you pay a premium of not more than 0.15% of the amount that is covered. For example, you should pay not more than $450 a year to insure for $300,000. If you opt for personal accident insurance, you should pay $180 to $360 depending on your occupation.
Do take your time to look for a suitable insurance cover. There is no great hurry.
This is the argument put forward by insurance agents to convince customers to put aside a large part of their savings towards a life insurance policy. This reasoning is flawed, as it fails to address the following key points:
a) Is the insurance necessary in the first place?
b) Is the consumer buying the right type of insurance?
c) Is the consumer paying the right price for the insurance cover?
In most cases, the answer to these questions is "no". The consumer is buying an insurance that is not needed, is buying the wrong type of insurance, and is paying a high cost for the cover.
What then, is the right type of insurance?
Life insurance is needed when a person has financial commitments, e.g. a family with dependent children, and needs to provide for their financial security in the event of premature death. A young person who is not yet married does not have this commitment. The priority is to accumulate and invest savings that may be needed in the future.
What about buying life insurance early to enjoy a lower premium rate? It depends on the type of insurance that is bought. For term insurance, which covers death from all causes, the premium rate is quite flat for people below age 55, which is the period that insurance is really needed. After that age, the consumer should have accumulated sufficient savings with a proper financial plan, and does not need to rely on insurance.
Life insurance should be used to protect against premature death, and should not be used as a form of savings and investments - unless it is able to provide a yield that is comparable to other types of investments. In most cases, the yield is terribly low!
At the younger ages, the biggest risk is premature death caused by accidents. The premium rate for an accident insurance is flat, regardless of age.
It does make sense to get a life insurance policy, especially a term insurance policy, at an early age as part of your financial plan. But, make sure you pay a premium of not more than 0.15% of the amount that is covered. For example, you should pay not more than $450 a year to insure for $300,000. If you opt for personal accident insurance, you should pay $180 to $360 depending on your occupation.
Do take your time to look for a suitable insurance cover. There is no great hurry.
Singaporeans will continue to be under insured if the current commission driven model is kept.
ReplyDelete1. Too big a chunk of customers' premium goes to the insurance agents and the uplines , like the managers and group sales managers.In total more than 160% goes to paying the agents and their pimps. Another 100% goes to paying the CEO and the senior managers and staff.All these people's interest is embedded in the commission and the customers are unaware.HIGH COSTS MEAN LOW PROTECTION AND LOW RETURN.
Therefore the multi-tier remuneration structure must be destroyed and the commission reduced to 50% spread over 5 years to reduce the impact on the protection and the return.
2.The advisory process must be implemented and enforced by MAS to meet section 27 of the FAA.
3.MAS must get the power from parlaiment to prosecute directly the errant agents and the company. Do away with FIDREC and the other crap resolution bodies. MAS must sue and prosecute the agents on behalf of consumers.
4. All insurance agents calling themselves by all sorts of titles must have minimum tertiary qualification in financial planning or finance.This is a financial advisory profession and NOT a sales job.They must obtain the profession qualification before becoming an adviser/consultant/planner like law or doctor or accountant.
Those who cannot meet them give them time to acquire or else leave for other industries where they are much needed for their kind of skills, eg conning skill or salesmanship(these words are interchangeable)
If all the above are observed then consumers will feel safer to engage anyone although there maybe rogues still.This is to get rid of people who think this is a get rich quick indsutry.
Do you know NTUC has launched a product called vivosave with cashcows.
ReplyDeleteCASHCOWS? dunno who will become cashcows to the agents and the companies. Right now all the policyholders are cashcows providing for the agents to live a lifestyle like the young undergrad of 23 with earning of $200k a year, a condo and a fast car.
You, the consumers, will soon become the cash cows.
Below 0.12% of sum insured for term insurance, and it's quite flat until age 55? I bought NTUC Income term at age 39 and pay S$1,100 per year. That's 0.22%!!! Nearly double. Is there a policy below 0.12% ?
ReplyDelete@11.44 am
ReplyDeleteSee if you can get a cheaper rate from the SAF policy or other group policy. http://tankinlian.com/FramePDF.aspx?ID=116
In the case of the SAF policy, the premium rate is .15% of the amount insured, but it covers up to age 65.
ReplyDeleteBut, if you are paying 0.22% because you took it up at an older age, it is acceptable.
I have changed my blog to show 0.15% instead of 0.12%. But most young people should be able to get a premium rate below 0.15% if the insurance does not extend beyond age 55.
ReplyDeletePremium is based on age and it doesn't mean you pay the same cost through out.It appears so but cost of insurance will increase with age.
ReplyDeleteEg; a child buys at age 5 and when he reaches age 30 he pays the same cost as the one aged 30 who just has taken up. How? The child accumulated enough cash value to bear the increased cost of insurance.For the newly entered 30 year old he pays extra premium to bear the future increase in cost of insurance.
Therefore the agents are lying and untruthful when they say the young pays the same cost through the life of the policy.
Remember the cost of insurance is one of the many components in the premium.You pay extra 'premium' to be saved to pay for future cost of mortality. Eg. hypothetically the cost of insurance maybe 5% of every dollar in the premium.If your premium is $100 per month maybe $5 goes to pay for protection the remaining $95 goes to pay the insurance agents and others go to the expenses to set up the policy and operating cost. Nothing is saved in the first 2 years
This structure applies to both term and par insurance.
To debunk the lies of insurance agents ALL the costs of insurance, both term and wholelife or par insurance are LOST as expense or become the revenue for the insurance companies.
What you get back in whole life and endowment plans AFTER a long period as cash value comes from the EXTRA or SURPLUS premium which is yours saved in the rotten portfolio for you to pay your future cost of insurance and other expenses charged by the company and the rest left over becomes your cash value..
In term insurance the extra premium is saved and but NOT returned ,but to pay for future cost of mortality only.
From the above you can see it is better to buy a term insurance and save and invest the rest yourself to get superior return.
Buying wholelife or endowment or any par plans is a losers' game if not idiotic.
So , don't be FOOLS and become the CASHCOWS of the insurance agents and their company.
I hope FiSCA could be the voice of the people to create public awareness on financial products in the market and leave to the Regulatory Authority and the Chairman Parliamentary Committee of Finance to question MAS on why they approve these products.
ReplyDeletePM in NDP message calling Singaporeans to change for better. Maybe it is time a change in MAS to be more consumer oriented rather than supporting Financial Institutions. Yes I agree, do away with FIDRAC, what are they doing, only collecting taxpayers money for their salary.
I hope FiSCA could give a no partial advise eg buy term etc.
For medical, now there is EARLY CANCER Policies being promoted, everyone scared and buy, benefitting agents and the company.
Could FiSCA call on the authorities to incorporate early cancer into the present 30 critical illness cover. I remember 20 years ago there were 20 odd critical illness. Because of market changes, incurance companies increased to 30 at no cost to policy holders.
Maybe FiSCA could question the rationale of the early cancer?
Keep up the Good Work to FiSCA.
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ReplyDelete