Asked 2w ago
The coverage seem impossible to achieve with any single policy, making consumers buy more and pay higher.
In your questioning, I sense a tint of indignant in regards to what your advisor may have proposed to you in term of your life coverage.
Some of my personal experiences with my clients is that there are many people out there who feels "nah, insurance is just a hoax", "those agents are just out there to earn/cheat my money", "I am healthy why do I need any coverage", or some that I have come across who says "hey I only need to take care of myself so i don't need any insurance payout".
I wound'nt say there aint some black sheeps our there that taint our profession but hey a bigger majority of us professional follows the rules and guides to find the right solution for our client. As to why financial advisor would recommend 10X your annual income to cover for Death and 5X your annual Income to cover for Critical illness do refer to the link below. There are statisitcal studies involve to come out with the numbers.
this is the link from Life Insurance Association
No one should recommend you a coverage that is out of your financial means that's not what financial planning is about. But of course (many of who are in the same industry as me) would have experience client who have excess cashflow of 10,000 a month finds a insurance plan that is 500 dollars a month expensive to protect their life; but are willing to spend thousands of dollars a year for Car Insurance so as to protect their beloved Car. So prioritize what is most important to you. (YOU)
When nothing happens to an insured, the insured says "wah buy insurance is a waste of money" but if you talk to those who are/ or have been Critically ill or to the family whose breadwinner has passed on without any form of insurance they would have a very different story to tell you. The Sum Assured paid out could have save the family from many adverse stiuation. Like what's is currently happening to a close relative of mine.
Now, I would suggest if the premium is somewhat too high for Wholelife Plan then go Term protect yourself through the peak of your working life so that at least there is some form of coverage be it Death of Critical illness. But do beware that once the term expire there is no more coverage so choose your term(length of coverage) of the policy wisely. (Additionally, term is not always cheaper, some wholelife plan with limited pay feature can be cheaper if you add the total premium paid for term and compare to the limited Pay Wholelife Plan). i.e term premium for 40 years is 900/year total 36,000 compared to Wholelife Plan 25 years premium for 1200/ year is 30,000
You may also buy a lower wholelife plan with Critical Illness rider and add the rest of the gap with Term insurance. (You need to compare across different insurer to find the most value for your buck, dont just stick to one insurer. Just like how you would compare price on Shopee, right?)
Your life / presence is the most important thing in this world to yourself and to your family, other things are non-material. Prioritize
Stay Safe and Stay Sane
Pm me if you want to compare across different insurer
Oh wow. And I am here doing my slides for Insurance Planning JEDi Episode 5 and found a Q&A specifically on this 10X income and 5X for CI.
its going to be a deep conversation if i go really deep, but there is a related question over here
Quote and unqoute myself "
These are just general rule of the thumbs. Because it covered the following:
(1) Cost of 10X annual income is for death and 5X to premiums is affordable enough.
(2) Coverage should be sufficient for a family to make changes and accomodate (either lower expenses or change in lifestyle which should hopefully help).
(3) some form of coverage helps to manage cost expectations (combination of the 2 reasons above).
Of course, a more detailed coverage plugging all the liabilities would be much better, but that takes a lot more work."
If you have TPD, would $1 million be enough? Thats my question. (can it last 50 years with medical inflation? while you invest in a fairly stable to pay your own nursing home + care + expenses). A fairly reasonable estimate is $2,000 a month for a TPD person.
If you need even more details and research, might want to drop over to AIC (Agency for Integrated Care) and ask from the horse mouth if you have such concerns.
If it is impossible, insurance wouldn't work.
It is very possible to structure insurance plans at a very low cost with the guidelines. A combination of both term and whole life will tend to fix the budget problems.
A rule of thumb is that it should not exceed 10% of your after CPF cashflow. The times where it exceeds that is usually when a person has issues with medical underwriting requirements, which will lead to a higher cost of assurance charges.
A multiplier eg 10x, 5x is used with referrence to the number of working years a payout can cover in the event of death/TPD or CI. Of course, it also depends on your life stage and who are you leaving this for. A higher coverage during the essential working years accounts for lost opportunity and provides hedging against debt/liability. For example, a sole breadwinner holding a policy with a spouse and two kids, that might potentially mean dividing the death payout potentially into three, depending on how you make your nominations.
And contrary to your statement, it is not difficult nor expensive (all subjective of course) to cover 10x of your annual income for death (of course, depending on how much you earn per month). There are cost efficient ways to go about it eg. Getting a Term plan.
Much of financial planning is a tension between what is ideal (having a template multiplier) VS current budget. And we always stick with the latter and what is best suited for the clients' needs.
Food for thought.
Financial planning is an integral part of life. You can reach me here to find out more.
Instead of doubting the insurance agent's agenda, we should instead spend quality time to understand your own needs. On the whole, we are able to give you a general guideline based on industry's standards. However, in order to get the right amount of coverage that you need, we need to conduct comprehensive financial planning.
Generally, life insurance coverage can be split into three life's major event,
Total & Permanent Disability
There are a couple of factors that we need to clarify and plan before we can establish whether there is a need for death coverage. For example, do you have any dependents? Do you have any liabilities?
Total & Permanent Disability
Since you are alive and continues to live, there exists a need to be insured.
Similar to the rationale for Total & Permanent Disability, there exists a need for you to be insured.
At this point, you will realise that the coverage is used for different reasons. For example, a person with no dependents may need lesser coverage for death as compared to someone with dependents. Despite that, we will only know the actual figures after we conduct comprehensive financial planning and to plan for your future. Once we have the actual figures, we can compare it against the general guideline to realise if it makes sense.
To do this, speak with your trusted agent or an experienced referral that you trust.
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