I was planning on Manulife Lifeready Plus policy but a AXA friend insisted that Term Protector and AXA Flexiprotector is better in terms of coverage and wealth. Am i making a huge mistake here?

Hi Xie Yao,

It looks like you are looking at covering yourself for critical illness. Based on the responses you have provided below, you also have an AIA GPP (II) policy. It would seem to me that you are looking to increase your CI coverage, and maintain a decent amount of CI cover for whole of life, after the multiplier ends.

In this case, you will want to get a policy that is cost efficient. As you have mentioned, you are not looking at the cash value, which should be the correct way to approach this. Insurance is about the protection you get, not the cash value that you can withdraw from the policy. The cash value is but a bonus to you.

If we look at any limited payment whole life plan, you will always benefit from the fact that you only have to pay premiums for a certain number of years and your coverage stays forever. Note that for plans like that, there is a minimum guaranteed coverage which cannot lapse as long as your premiums are paid. Furthermore, once your plan is paid up, your protection is guaranteed for life.

For an ILP like Flexiprotector, part of your premiums are used to pay for insurance costs, and part goes to investment (the cash value). The problem here is, how certain are you that the investment returns will be able to offset the increasing insurance charges over time? You can refer to this (section 9, cost of insurance) and what you need to understand is that the insurance charges will definitely be deducted every year, and this is guaranteed. Your investment returns are not guaranteed.

I do not know what kind of projections were shown to you, but it makes more sense to take a 4% growth scenario rather than a 8% scenario, as you will likely have both fixed income and equity funds in the ILP. If the 4% scenario cannot sustain the rising insurance charges, your policy will lapse once your account value goes to $0, and with it, your coverage as well. In other words, there is no guarantee that you will continue to have coverage for CI/early CI in old age, compared to a limited pay whole life.

Lastly, if the term protector is meant to cover death and TPD only, you might want to look at other insurers to see their offers as well.

Please separate investments from insurance, and purchase what you need, not what your friend wants to recommend. Don't be in a hurry to sign anything, and _ _I hope you will be less confused after reading this. If you need to clarify any part of my answer, you can reply to my post.

Investment

Above all, investment only yields non-guaranteed return. Therefore, it is not right to look at the cash value without understanding the underlying investment vehicle to that end. For this purpose, I will suggest for you to understand more about the fund and its track records. This is because it has a direct impact on the cash value that you may be receiving in the future.

Participating Whole Life

Next, Manulife LifeReady Plus is a participating whole life insurance policy. Accordingly, your premium is invested into the insurance company's participating fund.

More Details:

What is a Participating Fund?

Be that as it may, you will receive both guaranteed and non-guaranteed cash value, depending on the experience of the participating fund.

Comparison

At this stage, you will realise that you are comparing across two different financial products. Therefore, it is unfair to state that the cash value is not as great without understanding why.

So how?

In your situation, I will suggest for you to have a complete understanding on your existing insurance portfolio first. Thereafter, spend quality time to plan for your future. It is only when your future is clear, then we can use the right financial instrument to help you reach your goal. All things considered, you need to be confident with the decision that you make. When in doubt, speak to an experienced consultant who is able to guide you in a responsible manner.

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