Whole Life Insurance
Early Critical Illness (ECI)
Critical Illness (CI)
Asked on 22 Mar 2020
Have H&S (private) & PA (100k)
Parents depending on me for the next 20 years
Must have sufficient ECI & CI protection till age 75/80
(I'm not certain if coverage till age 80 will be alright or not.)
(Although am open to this option if there are significant advantages aside from buy term invest rest option. Do not know much about investing as well.)
I'm just going to make some deductions here:
You'll want a equal mix of CI and ECI. Hence, I will be looking at a $100K SA with x 2 multiplier to give you at least $200K coverage. I'll throw in the x3 multiplier numbers to give you an idea of the cost.
You are 32 ANB (Age next birthday)
You'll want to pay the premiums over the next 20 years so that you'll be done before 55. 25 year options are available too, should you wish.
Your CI/ECI cover is boosted till age 70 at least, some insurers have an option to boost it further, but 70 is very common. If you need other permutations I'll have to work them out seperately. When the multiplier ends, you will fall back on your $100K SA with bonuses.
You already know why you need CI/ECI cover and just want to know the numbers (i.e. price) involving such policies, as such, I won't elaborate too much.
Having said that, the most competitive plans in the market now (and the ones that most clients end up getting) are usually from Aviva, Manulife or China Taiping. Each plan has their own distinct features, so you can't solely judge on price.
For $100K x 2, we're looking at $2881/yr, $3135/yr, $3265/yr from these 3 companies so you can see the difference is not extreme.
For $100K x 3, it'll cost $3578/yr, $3730/yr, $3790/yr, so the gap is quite similar.
Hopefully that gives you a sense of the cost.
As a rule of thumb, don't spend more than 10% of your income on coverage. Based on the fact that you have H&S and PA, subtract those premiums from the 10% and you'll know how much CI/ECI cover you can comfortably get without straining yourself.
Term life with ECI is very expensive. I have run some quotations to benchmark against a whole life with ECI and it almost never makes sense to get a term with ECI due to the total cost. Plus, it doesn't help you if the term plan ends at age 75 and you get CI at 76. You'll still be alive, but may be a financial drain.
I'd also recommend getting a term plan (pure death/TPD) to protect your income, this is extremely important if your parents are dependent on you for their retirement.
Speak with an independent financial advisor if you need a more in depth discussion.
In regards to what you are looking for this is what I think might be the most viable solution for you;
Get a WL with basic SA of 100k with a lower multiplier factor till 80 years old. Why get a whole life? This is mainly to provide us coverage for Critical Illness, because Critical Illness can occur at any age, so you definitely want to be protected and covered for the whole of your life. It would be also good to get an Early Criticial Illness coverage with this plan as well.
Also with your situation where there are dependents, it would be good to look at a Term Plan for extended coverage. For this term plan, it can be used to cover your potential earnings, as in your case, where you are making 4.5k a mth, a year it would be 54K and looking at 20 years, that would mean a potential income of 1.08mil. So I think you might need to look at getting a term policy coverage of 1mil for death and CI for that 20 years.
I'm not sure on how the cost effectiveness will be, but a whole life policy has a limited pay option, meaning you can do 15-20 years, and also the term policy should be paid as covered, meaning if you are covering 20, pay for 20.
Also ideally insurance expense should be around 10% of your income, I think the furtherest you can stretch would be 15%, yep
You need to know why you need the insurance coverage. For instance, basic life cover (i.e. death coverage) is when you have dependents (e.g. parents), liabilities (e.g. house), or when you wish to leave a legacy behind. Beyond that, the need for basic life cover decreases.
On the other hand, you will want to have critical illness coverage for as long as you are alive. The reason is simple - you won't want to be in a situation when your coverage ended yesterday and we are diagnosed with a condition today; then how?
While healthcare insurance takes care of the medical bill, there are often many other costs that are unaccounted for. Moreover, these are costs that will be paid from your own pockets.
Participating Whole Life Insurance
Generally, it consists of insurance coverage, together with cash value from the participating fund.
Since part of your premium is used to pay for insurance charges, thus you may wish to understand more about the charges itself. Moreover, if you include coverage for critical illness or early critical illness, then you should spend quality time to understand some of the definition for payout.
These are some of the reasons that could contribute to the premium difference across different insurance plans provided by the various insurance companies in Singapore.
For the most part, all my clients prefer to choose plans with broader definition for claim.
Participating Cash Value
After we have accounted for the cost of insurance, a portion of your premium is invested into the insurance company’s participating fund. With this in mind, it will be good to understand on how a participating fund works.
For the most part, it is important to understand the investment allocation made by the participating fund. For instance, one company may place greater emphasis on equities in order to give policyholders the same rate of return as compared to another insurance company that placed greater emphasis on bonds.
As a result, most of us prefer a more conservative route since it is unnecessary to take additional risk than required for the same return (to policyholders). Furthermore, this leads to higher expenses which will indirectly affect the policyholders (explanation in my post on participating fund).
At this point, I have highlighted some of the key points to note when choosing the right participating whole life insurance policy. Of course, there are other options available such that we limit the number of years of premium payment, while getting whole life insurance coverage.
For the most part, it all depends on your needs and how we use insurance as a tool to fulfil your financial needs.
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