Sunday, October 18, 2015

Difference between whole life and term insurance for 25 years

Mr. Tan,
You have often advised people to buy a 25 year term insurance policy, instead of a whole life policy.

If a young person takes your advice, what happens at the end of 25 years? The term policy would have expired and he would not have any life insurance for another 20 years of his life, or maybe longer.

Is it all right to be without life insurance?

You need life insurance to meet a financial need, i.e. to provide funds for your family in the event of your premature death. Your family needs the financial protection when the children are young.

After 25 years, your children would have grown up and are independent of you. During the 25 years, you would have accumulated savings. By investing the savings wisely, you would have accumulated sufficient funds that can take care of your future needs. You do not need life insurance any more, after 25 years.

Take a look at this example. If you buy a life insurance policy to cover $300,000, you have to pay $5,000 a year. If you pay $300 a year to buy the term insurance, you can invest $4,700 a year in an index fund, such as the STI ETF.

If the fund earns an average of 5% yearly, the accumulated savings would amount to $236,000. After another 5 years, it would have grown to $300,000. You don't have to die to get this sum. It is cash in your investment fund!

If you bought a whole life policy, the cash value at the end of 25 years is likely to be around $125,000 only, i.e. half of the accumulated sum.

Which is better?


Anonymous said...

Whole life insurance only benefits the agents and the company and NOT YOU. Mr. Tan has shown you and he has projected the value at ONLY 5% and what if it is 6% or 7% imagine how much the cash value will be at the end of 25 years if you invest yourself. And if hold longer it will be even more. So do you need to die to see your family benefiting from you? You have to beleive him, he is an actuary and he knows what he is talking about and not the insurance agents or the company whose only interest is in your money.
Please , don't ever believe the insurance agents. He is in the business to make as much money out of you. You don't need a degree to know the best way to earn big and fast is to sell(not plan) you a product which carries the biggest commission.
Avoid the insurance agents and you will be richer.

Bai Hu said...

Yes, i agree with Mr TAN cos i am a victim too. We have to let our next generation knows about this. These insurance companies and banks were somehow being 'protected' by MAS. If not, why in the first place can these toxic policies be easily be sold in the free market?
Best protection for oneself is to read up and do more research on these policies and avoid buying anything when in doubt.

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