Asked by Anonymous
Asked on 17 Apr 2018
Hi there! This is a good question that you asked. Here i the best way to look at it, I'm completely unbiased coming from a financial writer point of view, so you can understand that my article/comments has no sales pitch inside. It is referenced from this article: https://blog.seedly.sg/working-adults-what-are-the-key-insurance-policies-you-should-get-in-singapore/
There are 2 types of pure essential insurance that anyone should get (if you can afford it)
1) IP (integrated shield plan) which is an enhancement to the current MediShield government coverage (basically this plan is for when you get warded)
2) Term or Whole Life (basically this is a payout in terms of death)
Why do people recommend BTIR (buying term life and investing the rest)?
Why do people not fear being not covered beyond age 65?
A whole life plan with Critical Illness rider:
So it should look something like this:
*Note: Numbers are arbitrary but used to illustrate an example. The $ dollar values should be matching your amount of debt or liabilities projected.
Fact: My own father just passed away from Brain Cancer (a critical illness) at age 54. So yes, all these illnesses are very real and it will most likely hit more people at a earlier age these days. (1 in 3 people get cancer today)
One of the weaknesses of a Buy Term Invest the Rest with Early Critical Illness (ECI) involved is that Term ECI is so disproportionately expensive that BTIR is an incredibly risky move.
The math, when comparing the whole life plan rider to it's term 'benchmark' would require the invest-the-rest result to be about 6% annualized, which can be difficult to swallow for conservative investors and incredibly hard to achieve for undisciplined people (which is more likely even if you're good at investing).
Take this example (as an FA I'm discouraged from naming specific companies or plans)
It costs $1001 for this ECI Term plan for a 35 year old till 70 (34 year term).
For a 20 year WL + ECI (manipulating the multiplier), it costs $1432.
Total premiums paid for WL: $28,640
Total premiums paid for Term: $34,034
Cash value at 70 for WL: $29,000
Cash value at 70 for Term: 0
So assuming you don't claim, you pay $5000 less and get back $29,000 after 70 if you need it.
Yes, you could certainly invest the difference, but the difference isn't huge. So between the discipline, skill and small capital - it's challenging. If you''re up for the challenge, I can help you with that as well.
I'd love to help you if you let me. You can reach me via PM-ing me the link below.
It would be good to prioritise coverage for Critical illness, Death and disability prior to investments. This is to provide you with a minimum safety net should anything unfortunate event occurs while you continue your journey of wealth accumulation.
As for extending coverage beyond 65, there are term plans that provide coverage beyond 65.
As you are currently 25 to 30 years old, premiums for Whole Life Plans tend to be more affordable, and offers you a limited pay option of 10, 15, 20, 25 years so that u only pay premiums during your working years to obtain coverage for the rest of your life.
As for Whole Life Plans with early critical rider, please do take note of the fine print for the maximum amount claimable should a critical illness be diagnosed by a doctor.
Disclaimer: I am a financial planner with Manulife. You may PM me on Facebook to find out more