Hi anon
Before we talk about the coverage amount, let's talk about the duration of coverage.
If you die early, then my question would be, did the policy fulfill its job? And the answer is yes. The policy was meant to protect against CI after all. However, your concerns that the money is 'gone to waste' suggest that you'd want some form of payout from a CI plan if you die early instead of contracting CI. So this CI plan has to have both a decent death benefit and a CI benefit. Thus, I'd rule out AIA ACC immediately, the death benefit is only $5K, and the cash value of this plan is only applicable if you take a plan till age 100, which, I'm sure you will agree, will not make sense, total premiums wise. Even with a cash value, it is likely that you end up paying more premiums than the surrender value available to you at age 75. A whole life plan with CI riders and a limited payment duration would probably be better for you in this case (although it is limited to a single claim, but you don't have to worry about 'money gone to waste' since there is cash value from year 3)
If you contract CI after a plan ends, then you have zero coverage. You can't protect CI or early CI if you are not covered at the point when it strikes, so you need to ask yourself how important is is to have CI coverage at a certain points in your life. If your intention is to have some level of CI cover regardless of which stage of life you are in, you really only have one of three options
- Get a term plan till the point you want to be covered
- Self insure ('BTIR' and what have you)
- Get a WL plan with a multiplier (the 'hybrid WL-term') (some WLs have no multiplier, but I find it more economical with a multiplier)
I'm sure one can see the issue with the first option as you have stated in your question. If you get a term plan for CI till 65, then what happens if you are diagnosed at 66? Likewise, if you get a term plan till 75, what if you are diagnosed at 76? This is endless. A term plan till 99? You can guess what the total premiums are (hint: not very cheap at all). If you claim, great. If you don't, it'll be a cash flow you need to factor for your retirement.
How about the 2nd option? This might be construed as BTIR. But there lies a few caveats, namely, you need to take over the role of the insurance company after your term ends. You are not an insurance company. Do you want that responsibility? Because the responsibility of the insurance company, is that no matter what happens, the money's going to be there. Market crash, black swan events, what have you, a $200K policy will result in a $200K claim. A $200K investment portfolio may drop to $150K at the wrong timing. Are you going to sell off at that timing? Or bet on a recovery? What if you are not in the right health to dictate what to do? So many loose ends to think about. Yet the insurers, they do this for hundreds of thousands of people. They manage millions and millions of dollars and they do this with a mindset that is almost perpetual since they deal with whole life plans, and they have been doing this for years. And they cannot be allowed to fail in their responsibilities to the policy holders. But there is a chance, no matter how small, that you might mess up your investments. Do you have that kind of feeling of responsibility that you can take over the insurer's job by yourself and do you think you can replicate what they do?
And anyway, I don't invest to claim. I invest to enjoy a better quality of life in retirement. Feels counter intuitive to have a giant pot of investments that you cannot touch because 'some day I might need it in the event of CI'.
We're down to the WL multiplier type of plans. I can say that if you get one with a higher multiplier, you'll greatly boost your coverage during your working years, which is also probably the years you need the most cover. The basic sum assured is what will stay with you into your retirement years, and any payout is better than no payout. The payout, really, is about providing options for you. While alternative treatment is not cheap by any means, having an extra $50K - $100K to tap on first without depleting your retirement nest egg may open up choices that you (or your family) would be hesitant about otherwise. Likewise, if you need to hire a helper for a bit (which you might not have planned for in retirement), you're going to have to pay out of pocket, and extra cash will come in useful.
An alternative is also to take a pure term (can be single payout or multipay) + a separate WL with a low multiplier. Either way, this provides higher CI coverage for income replacement when working, and some basic CI coverage in retirement.
As for the coverage amount, you'll want an amount that can cover at least 5 years of your expenses with some amounts leftover for alternative treatment and other costs (TCM, second opinion, maid, special diet, etc etc, which could be around $100K or more over 5 years) during your working years. So whether or not $200K is sufficient depends on your expenses as this will impact the figure.
After you retire, I feel that an adequate amount would be to cover alternative treatment, etc, so that you don't have to liquidate your investments, draw down your savings and compromise your retirement.
Lastly, AIA is not the only company out there with a multipay plan (or even a whole life plan for that matter). Do speak with an independent financial advisor who will be able to give you tailored advice, and also let you know what the options from other insurers are.
Hi anon
Before we talk about the coverage amount, let's talk about the duration of coverage.
If you die early, then my question would be, did the policy fulfill its job? And the answer is yes. The policy was meant to protect against CI after all. However, your concerns that the money is 'gone to waste' suggest that you'd want some form of payout from a CI plan if you die early instead of contracting CI. So this CI plan has to have both a decent death benefit and a CI benefit. Thus, I'd rule out AIA ACC immediately, the death benefit is only $5K, and the cash value of this plan is only applicable if you take a plan till age 100, which, I'm sure you will agree, will not make sense, total premiums wise. Even with a cash value, it is likely that you end up paying more premiums than the surrender value available to you at age 75. A whole life plan with CI riders and a limited payment duration would probably be better for you in this case (although it is limited to a single claim, but you don't have to worry about 'money gone to waste' since there is cash value from year 3)
If you contract CI after a plan ends, then you have zero coverage. You can't protect CI or early CI if you are not covered at the point when it strikes, so you need to ask yourself how important is is to have CI coverage at a certain points in your life. If your intention is to have some level of CI cover regardless of which stage of life you are in, you really only have one of three options
I'm sure one can see the issue with the first option as you have stated in your question. If you get a term plan for CI till 65, then what happens if you are diagnosed at 66? Likewise, if you get a term plan till 75, what if you are diagnosed at 76? This is endless. A term plan till 99? You can guess what the total premiums are (hint: not very cheap at all). If you claim, great. If you don't, it'll be a cash flow you need to factor for your retirement.
How about the 2nd option? This might be construed as BTIR. But there lies a few caveats, namely, you need to take over the role of the insurance company after your term ends. You are not an insurance company. Do you want that responsibility? Because the responsibility of the insurance company, is that no matter what happens, the money's going to be there. Market crash, black swan events, what have you, a $200K policy will result in a $200K claim. A $200K investment portfolio may drop to $150K at the wrong timing. Are you going to sell off at that timing? Or bet on a recovery? What if you are not in the right health to dictate what to do? So many loose ends to think about. Yet the insurers, they do this for hundreds of thousands of people. They manage millions and millions of dollars and they do this with a mindset that is almost perpetual since they deal with whole life plans, and they have been doing this for years. And they cannot be allowed to fail in their responsibilities to the policy holders. But there is a chance, no matter how small, that you might mess up your investments. Do you have that kind of feeling of responsibility that you can take over the insurer's job by yourself and do you think you can replicate what they do?
And anyway, I don't invest to claim. I invest to enjoy a better quality of life in retirement. Feels counter intuitive to have a giant pot of investments that you cannot touch because 'some day I might need it in the event of CI'.
We're down to the WL multiplier type of plans. I can say that if you get one with a higher multiplier, you'll greatly boost your coverage during your working years, which is also probably the years you need the most cover. The basic sum assured is what will stay with you into your retirement years, and any payout is better than no payout. The payout, really, is about providing options for you. While alternative treatment is not cheap by any means, having an extra $50K - $100K to tap on first without depleting your retirement nest egg may open up choices that you (or your family) would be hesitant about otherwise. Likewise, if you need to hire a helper for a bit (which you might not have planned for in retirement), you're going to have to pay out of pocket, and extra cash will come in useful.
An alternative is also to take a pure term (can be single payout or multipay) + a separate WL with a low multiplier. Either way, this provides higher CI coverage for income replacement when working, and some basic CI coverage in retirement.
As for the coverage amount, you'll want an amount that can cover at least 5 years of your expenses with some amounts leftover for alternative treatment and other costs (TCM, second opinion, maid, special diet, etc etc, which could be around $100K or more over 5 years) during your working years. So whether or not $200K is sufficient depends on your expenses as this will impact the figure.
After you retire, I feel that an adequate amount would be to cover alternative treatment, etc, so that you don't have to liquidate your investments, draw down your savings and compromise your retirement.
Lastly, AIA is not the only company out there with a multipay plan (or even a whole life plan for that matter). Do speak with an independent financial advisor who will be able to give you tailored advice, and also let you know what the options from other insurers are.