Asked by Anonymous
Asked on 31 Jul 2018
Dear Anonymous, what a great question. Too often I see many advocates of BTIR with no clue what they're doing, or what to consider on the insurance end. Generalizing will be extremely costly for them in the future - but not for you. I'm going to spend quite a bit of time on this question, because its important for everyone else.
I've quite a bit of experience in this area, so there are a couple of things to consider because you didn't state the specific category - when you buy Term insurance, there are specific categories - Life, TPD, CI, ECI and Multipay. It's not limited to just Life.
There are whole life options for all of these and BTIR is used to position against them to see if you can't do better respectively. I've done extensive research on the annualized return required using the average of multiple companies and their companion plans, compared to a whole life plan with rider.
Assuming Age 30 for each scenario:
a)Life/TPD - 1.8 - 2%. No brainer. If you want a purely life plan, get Term. It's really no contest. I generally recommend Term to my clients who don't have a criteria past this, because the math supports this decision. You don't even need to invest the rest well - you can leave it in SSB or CPF and sleep.
b) CI - 3.7 - 3.9%. This is a little trickier. After you account for paying every single year and the time and effort spent on investing, some people still opt to have a conservative whole life option.
c) ECI - 5.8 - 6%. This is easily the worst, which is why I actually do try to sell whole life with ECI riders for this. Insurance is supposed tot be guaranteed and conservative. You have to invest in funds or etfs with higher volatility and this could compromise the returns/amount you want after the Term ends quite badly. ECI is also rising in cost, so it's not at all unlikely this will go up first, because Whole Life returns by companies balance out the cost, so Term plans will become more expensive before Whole Life with riders do.
d) Multipay - A fairly new category for whole life, and about 3- 3.2%: So far the only comparison I've made for a Multipay whole life vs Multipay Term is with Aviva's - largely because not a lot of companies have Multipay, let alone whole life multipay, and the whole life option is hella expensive, so I'd actually recommend Term if you really want Multipay.
Skipping past your second to your third point, there isn't a best option because competition between the insurance companies keeps things interesting, as well as the sentiment of the market. This refers to two things which I can show via example:
1) Competition: There is serious competition in the market space between the major and minor insurers and this happens all the time. One of the trends you notice is that smaller companies like SingLife, and Aviva growing now from this strategy since they sealed the army contract would put ridiculously lower prices for their same products, because they don't have as strong a credit rating. In contrast, bigger companies with more resources tend to charge a little higher, but they also release products more often, lead the market in modern features such as Loss of Independence, Multipay, Welcome bonuses for ILPs, etc. Stealing each others ideas is also common, and as a result what is the 'best' option in defining areas such as 'range of coverage' 'affordability per year' 'total premiums paid' 'duration of coverage' 'definitions of illnesses in that range of coverage' is constantly changing.
2) Market Sentiment - Life insurance is actually much cheaper presently than it was before. Not many people know this because we naturally assume things scale with inflation, which they usually do. But a plan bought in the 1990s is much more expensive than a plan bought today for life insurance. The market - people like you and I, are expected to live to our 80s on average, while the generation of the 1990s were expected to live up to their high 60s at best. As a result, life insurance costs has to drop, while the probability - the longer remain alive - of getting a CI increases, so CI and disability insurance will only continue to rise.
As a result of these two points, the best option today is going to change rapidly tomorrow.
That being said, for ECI/CI in particular, it makes sense to hedge the rising costs by trying to get the best plan today. Life on the other hand, should be bought with Term and you can jump from one company to the other in the event you don't claim to save more and more money effectively. It's a matter of balance and budget as well, which is why there really is no 'best' option lest someone like myself, goes through it with you thoroughly and you can decide.
In regards to which insurance company would be most suitable, I'd love to help you in this area because I'm an FA who represents multiple companies, hence my ability and experience to provide this analysis.
It's best not to assume that any insurance company will provide the best solution for your lifetime, but to have someone who can deliver for you. You can drop me a message below, if you think I could help you with this.
Have a great day.
EDITED for omission of unnecessary vulgarity to create emphasis. Thanks to Kenneth and thanks for the upvotes. :(
There's no best option because everyone's financial situation is different. Everyone has different financial objectives and commitments.
If you are looking to get term then you probably need to understand how much coverage you need and if there are any shortfalls.
Also, you need to know how to invest to grow your money.
When you get Term plan look for the fine print. In Singapore, all critical illnesses coverage follow the same definitions set by Life Insurance Association of SIngapore. What's different is as follows:
Death by suicide - some companies cover, others don't
Total permenant disability - it varies by companies
early stage critical illnesses - it also varies by companies
It's not just the premiums you're concerned with. As an investor, you know that you need a company with good standing to honour the payout when stuff happens. And you should be looking for the right agent, not the right company. Products are more or less the same but the advice each agent gives and how they derive the amount you need differs. And everyone's family and income circumstance, thoughts and behaviour are different. So there's no one size fits all best option; rather it's finding out what's the best for yourself by talking to someone you trust!