Tan Kin Lian's Blog: Life insurance for family protection

Friday, January 15, 2010

Life insurance for family protection

You only need to worry about life insurance when you have dependents, e.g. after you are married and have children. In the event of premature death, the life insurance policy will take care of the financial needs of your dependents.

You should buy a low cost life insurance, such as a Term Insurance or Family Income Benefit. If you take the insurance at a young age, you only need to insure for 25 years, as your children would have been financially independent on the expiry of the insurance. Furthermore, after 25 years, you would have accumulated sufficient savings, and life insurance is not needed at that time.

If you buy Term Insurance or Family Income Benefit at an older age, you can buy for a shorter period, e.g. until your youngest child reach age 25. If you take up the insurance when your youngest child is 10 years old, you only need insurance for 15 years.

The best insurance is actually a Family Income Benefit. You can insure for 60% of your current earnings. If your monthly income is $5,000, you can buy this insurance to pay $3,000 a month in the event of premature death (i.e. during the term), for a benefit that is payable for the remainder of the term. If you buy a 25 year insurance and death occurs after 10 years, the Family Income Benefit is payable for 15 years.

Alternatively, you can buy a Term Insurance to provide a lump sum of 5 years to 10 of your annual income, for a term of 25 years. If the term is less than 25 years, you can reduce the insurance sum proportionately. If you need insurance for the next 15 years, you can insure for 3 to 6 years of your income.

A Family Income Benefit is better than Term Insurance, as your family will not have to worry about investing the lump sum payable on premature death. Instead, they will receive a monthly income.

You can upgrade your Term Insurance or Family Income Benefit every 3 to 5 years, to increase the insurance in line with your higher earnings. However, even if you do not, the basic benefit should already cover most of your financial needs of your family.

You can visit this website to get an indication of the premium rate that you should be paying for Term Insurance. Although the website is for America, you can get an idea about the premium that you should be paying for similar insurance in Singapore. I have not been able to find a website to give the premium rate for Family Income Benefit.

Tan Kin Lian

5 comments:

Anonymous said...: hi Mr Tan,
thanks for sharing yr knowlege with everyone.
it appears that Family Income Benefit is sold either as a rider on existing insurance or as seperate product.
which will be better in yr view?
which insurer(in yr view) gives the best deal?; January 15, 2010 2:07 PM
Anonymous said...: Hi Mr Tan,

According to wikipedia, seems like family income benefit mostly popular in UK and quite unknown in other countries (except maybe ex-british colonies).

I focus on UK websites and I got the below:
http://life-insurance.moneyworld.com/Option1quoteFrame.htm

It's an online UK insurance broker. I tried out for 30-yr old male, level income benefit equivalent to S$36,000 per year, upon death only, term of 25 yrs, no inflation protection, and no waiver of premium.

Cheapest premium is only about GBP99 per year, or S$225 per year.

That's cheap!

For KS people, can add Critical Illness, inflation protection and waiver of premium.

Ex-Con; January 15, 2010 2:58 PM
Anonymous said...: Called up ntuc to get 2 quotes for standalone family income benefit.

For 30yo male, income benefit of $3K/mth, term of 25 yrs, covering death & TPD.
Annual premium is $545.

If want to add CI, need to pay additional about $600 per year!!

For 35yo male, the rest same as above (death & TPD only).
Annual premium is $901. (!!!)

I guess can use the above as guideline for local family income benefit insurance.
Anybody got lobang with other local insurers?

Ex-Con; January 15, 2010 10:31 PM
Anonymous said...: Oh btw, after going thru details with my ntuc buddy, found out that they have a product called Family Insurance Plan (FIP). This FIP is like an empty envelope in which you select term riders that you need e.g. level term life, decreasing term, term CI, family income benefit etc etc.

So if you just want a standalone family income benefit it is possible, or if you just want a standalone term CI, also can.

Additional flexibility is that with 1 FIP policy, you can include yourself, spouse and kids. And each of the insureds can have their own type of term cover. Extreme example can be you have family income benefit and term CI, your wife has decreasing term and waiver of premium, and your son has hospital cash benefit. Advantage is that you pay single policy fee for all insureds, instead of separate fees for each person.

Ok, if this FIP so flexible, how come don't get to hear about it from agents? In fact most agents will recommend the I-Term product (which is level term life) and then ask you to add the other term cover as riders.

Reason is becoz if sold as I-Term, agent gets 40% first-year commission. Whereas for FIP, agent only get 10% first-year commission!

So you can make ntuc agent du-lan by insisting on level term life as FIP, instead of I-Term. The coverage, terms & conditions, premiums all exactly the same! Except make a big difference to how much commission the agent will get.

No lah, if the agent has been open and willingly shared about FIP, then at the end if you want level term life, do go with I-Term. Agent also got to eat! :-)

Ex-Con; January 15, 2010 11:01 PM
Anonymous said...: Ex-con, you mentioned so much product combination - it is quite confusing.

How to make the agent work and simplify for us the product combination but pay him/her the least commission is the tricky part.

can contact your ntuc buddy to summarize all the combination in one page and we just buy off the shelf or directly from ntuc itself?

like that we can save the middle man comm.; January 17, 2010 5:45 PM