My insurance agent just approached me to get a life term insurance. Should I go for package that include investment or just the Term Product? Any advice? - Seedly
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Zachary Teo

Asked on 09 May 2020

My insurance agent just approached me to get a life term insurance. Should I go for package that include investment or just the Term Product? Any advice?

I know how to invest but just wondering how do you guys go about with this. Do you diversify your investment with insurance company?

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Hey there! A term plan is definitely an option for you, in terms of affordability etc. The cash flow will be great for wealth accumulation. Also, some term plans are convertible to life plans during the plan tenure so ultimately, it's making reviews and adjustments to your insurance portfolio gradually with life-stage changes.

There are different Investment-Linked Policy (ILPS) everywhere, with ILPS focusing on protection needs to ILPS that are focused on investments so do check with a trusted advisor. You might want to look at how each insurer's ILP funds are doing at their websites to gauge how their investmenets have been doing (noting past performance is not a guarantee for future gain) to get an idea.

Financial planning is an integral part of life. You can reach me at this platform to find out more.

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You have to do your own opportunity cost and benefit analysis.

i am currently paying for a term to 99 coverage of $1mil, but regreted slightly because if i did not, i would have more liquidity to play around with (especially if you can invest and get 5% returns annually and above). But that is better than a whole life plan simply because the coverage is important now (i have a child and housing loan).

If you are buying an ILP, to diversify, i think thats a fallacy because you should diversify so that you reduce unsystematic risk (risk pertaining to a certain economy, sector etc), not diversify to products that invest in the same industry, companies, sector, country etc etc.

Unless you are diversifying the money you would put into funds (you want to diversify your investment between different fund managers who manage and invest differently), then it may make sense.

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Hi Zachary,

I don't advise mixing investment with insurance. The way you state 'life term insurance' seems to suggest either a term plan till age 99, or an ILP.

You would want to seperate insurance from investment. Invest on your own terms. Policies should be bought for their guarantees. I do not know what was the exact product that was recommended, or what you were looking at covering exactly, but you might wish to understand what your own coverage needs are, and then look for a cost efficient plan to cover it.

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Tay WenHao
Tay WenHao
Level 7. Grand Master
Answered on 11 May 2020

Hi as many have mentioned, I WOULD NOT mix insurance and investment.

For me, I'll go with Whole/Term Life and do the investing separately.

If you are new to investing yourself, you can always go for ETF or Unit Trusts. Lesser cost and management fees if you do it yourself. If you have a larger risk appetite, you can go for stock picking (start with blue chip) after learning the basics of investing

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Do your basic budgeting and needs here first: https://www.aaronleow.com/insurance-requirements-calculator

Afterwhich, a general guideline is that your complete insurance portfolio to protect your income should be capped at 10% of your after CPF income, that would be the rule of thumb.

To answer your question specifically, the assurance charges for ILPs are good for new-borns, but the cost will go up significantly as they age. As such, whether a recommendation can be considered depends on your life stage.

The structure of an ILP tied to insurance is to ensure that the wealth portion covers the increasing cost of the insurance as you age. There are benefits of ILPs that are not present in traditional term and whole life policies. The main risk is that the investment risk portion is on you, not the insurer. However, the flexibility which ILPs give are very good factors when making a recommendation.

Looking at several whole life and ILPs over the years, I can say that properly structured ILPs held over 20 years from the infancy of a child will bear more fruits than a traditional whole life policy. The numbers simply do not compare. The numbers are in fact, an overwhelming crushing defeat.

ILPs have a very bad rep, however, with experience on looking at the numbers across many cases, I strongly do not believe that they should be dismissed entirely from existence.

ILPs tied to insurance are meant as protection driven products, the investment portion is secondary.

If your objective is sole investments, get investment-driven products.​​​

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Aaron Leow, CFA, ChFC®/S
Aaron Leow, CFA, ChFC®/S

11 May 2020

My comment was directed at traditional whole life versus ILP. Not BTIR strategy. I believe that many studies have already been made to prove that BTIR will garner better returns than simply going ILP. As such I am not disputing that BTIR will get better returns.
Loh Tat Tian
Loh Tat Tian

12 May 2020

Thanks for clarifying it. So the fees in tradtional whole life vs ILP for the same risk profile, which is better? Am i right to say for the same risk, whole life will do better. But because the fees for ILPs is higher than, say whole life, its better to aim for higher returns so that the ILP will pay for itself and more.
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Term Insurance

Firstly, you need to establish your needs. If you only need life protection, then a term insurance works.

More Details:

What is a Term Insurance Policy

Having mentioned that, there are various types of term insurance policies on the market. This is exactly why you need to know your needs and be able to get one that fulfils your needs.

More Details:

Types of Term Insurance Policies in Singapore

Disadvantages

On the other hand, term insurance has its disadvantages. For instance, are you going to pay a term insurance till age 100 in order to be covered till age 100? This is unless you found one with limited pay option.

Moreoever, there is no way you can stop paying for the insurance policy but still continue to get insured. This is unlike policies with cash value where we can make use of the policy features, e.g. policy loan, premium holiday. This is especially useful for a period like now where uncertainty hovers around us and we may not have a stable income.

So how?

With this in mind, you will have to spend quality time to plan with your future in mind. Work with your agent or find someone capable who is able to guide you through the process. On the whole, you need to find out your needs and ensure that contingency plans are in place. Thereafter, it should be clear on which plan you should choose.

I share quality content on estate planning and financial planning here.

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