Disclaimer: The writer is not a certified professional planner of any sort. All advise shown here are opinions based on the writers interaction with other parties and self-fact finding. In no way should they be used as the only advice to make final decision. What works for the writer may not work for you.
Do seek a qualified professional to access your needs before purchasing any products. He is not affiliated with any companies mentioned in this article. The writer holds no liability for any mis-advice causing loss of capital or other form of assets due to information gathered from here.
I never thought i would write something like this. I guess it is due to a variety of reasons. I have friends coming to me asking me what kind of plans do i have and what kind of plans should they get. I am not a license adviser, thus i cannot provide any advice. All that i can offer is simple coffee talk.
Even for simple coffee talk, it is difficult to explain insurance to them. The problem is that agents and advisers make it a difficult subject, Your mother, father make it a difficult subject, your friends make it a difficult subject.Hell you yourself make it a difficult subject! By the time you finish reading this (which you most likely won’t lol) , you will know that i make it as a difficult subject. That is why I decide to write this to save myself trouble from explaining to them all over again every time.
I am not saying i am tired of explaining, but its not always i get the best opportunity and time to explain so I think this is the best alternative. I hope that readers can contrast what I did and my perception of insurance with what you do so that it reinforced your belief in the way you do it or spark a thought to change if you think you encounter some deficiency somewhere.
To any adviser or agents reading this. This is strictly my point of view. There may be some portion in this that you disagree with or that I have stated wrongly, I would be happy if you can point it out. In any other case, I don’t have an axe to grind against any parties. I am only using this medium to reach my friends.
My Insurance Philosophy
Insurance to me is about hedging against life’s unknown. It is a struggle of the insurer, GOD and yourself about the possibility of something bad striking you. Should your claim in this life time be less than what you pay the insurer, the insurer wins. Should it be the other way round, you win (to a certain extent haha).
In terms of the true cost of how much should be the best to insure me, GOD would most likely have the best figure. The next person would probably be me. The guy that is in the weakest position here is the insurer, since he can only based on what he can gather about people in my age group and the general trend but in the end would depend on how truthful I do my underwriting.
My view of insurance is like how I view other things:
- Everything has to be a balance
- Keep the cost as freaking low as I can
- Control what you can and plan for the worst case scenario
Everything has to be a balance
I have encountered many opinion when it comes to how much you should spend on insurance as a whole. Most advisers will have a figure that is a percentage of your current income. But that is normally not the way it started out. Most is a number of times of your last drawn salary. Based on that figure, I should be insured nearly half a million (yes I am that expensive surprisingly).
I have friends who think insurance is a way sales people cheat alot of money from them. Apparently, he is a teacher. To me that is abit over the top, I would say because insurance is essentially a sales profession, there will always be a situation that many poor souls get mis-represented, with them knowing or not.
I have friends who after hearing agents or advisers talk about the cases they encounter and think that you die die better insure as much as you can when you are young. They are correct about insuring when you are young. This is when you are fittest and have the least health problems. Your health condition will get worse as you aged, and by then, your insurability will change dramatically and your cost of insuring will increase as well. Having said that, my point of view is that many were scared into buying savings and expensive whole life plans.
When the advisers starts to talk about the risks and cases he has encountered, this is when the customers attention is being shifted from cautious about the agent to relating to his own scenario and then coming to realise that he may be in the same situation. At this point, if the customers is still "zhai", his rational thinking will still be working, but most will not be evaluating the planned solutions the adviser comes up with later.
This is when the adviser starts talking about the recommendation. And from almost all that i have encountered, they will recommend Whole life or Limited whole life. This is not wrong (Which i would touch on later). However, many omit the alternative which is term. Without listing all alternatives, it does not benefit the customer. In the absence of a cheap alternative, the adviser can sell what he has on hand more easily should the customer be able to afford.
Insurance, like everything else is about balance. Its about
- Balancing the amount of medical and financial risk that you are willing to take vs the amount you should pay for insuring. For some people, they know themselves that their probability of getting something bad is rather large. These can be, for example, both parents suffer from diabetes or that the parents and grandparents have womb cancer or that you are naturally weak like me. This has to be balanced with a healthy lifestyle and necessary prevention activites to alleviate such concerns.
- Balancing the ability to service the premiums and your employability. One thing that many do not know of my concern when it comes to choosing whole life or term is that in this age of working, there is no such iron rice bowl or working in one company. With globalisation and increase competition, retrenchment and unemployability is a very big concern. Paying so much premium at the start of your working years through buying limited whole life enables you to own the policy and reduce your risk of not being able to pay for premiums in your older years. This may be no longer true. It is especially risky if you are an engineer like me. We are fucking expandable if you ask me. I would rather pay less premiums for more coverage that i can afford even when I am retrenched or unemployed.
- Balancing the duration of insurability with that of savings for retirement and old age. It is about how long you wish to be insured and also knowing the different risks that you faced at different stage of your life. If you balance insurance expense and savings well, you can achieve the same set of results if not better.
- Balance coverage vs cost. You have a limited amount of money. You require a certain amount of coverage. You have a problem. You need to work within that window to best fit all in.
Keep the cost as freaking low as I can
When it comes to insurance, I do follow keeping how much i pay as a % of my total networth quite tightly. It is the same for investments. The returns can be variable, however, the cost is something you can reign in and one should do that if his pocket is not deep like me.
It is not to say that I am strictly a buy-term-and-invest-the-rest (BTITR) guy. I do own a limited whole life plan. I recommend buying term and investing because i see insuring as an expense. It is basically a concept that many kiasu Singaporeans are not able to see. Most would go: "Wah lan eh! I pay so much i get freaking nothing back. Zhun bo!". I believe it is a chinese problem as well lol.
Insurance, like alot of things can be considered an expense. I see many that willingly pay 500 dollars to 1000 dollars for car expense, maintenance of car expense for something that is for sure depreciating. Insurance looks something very similar as well. So why is it "okay" to pay so much for a car and not insurance? Perhaps it is the fact that car you can see it as an asset or basically a hobby or something you long to have since you are a kid. The list of examples can go on.
Buying term and choosing the cheapest term can reduce your monthly premium by a hell lot. For example, a 100k term plan that covers Death, TPD, CI would set me back for 50 bucks per month. If you pay for a similar Whole life (not limited whole life) you will pay about 191 bucks. Thats almost 4 times. Think of the savings that you can save.
That does not mean you save the money and go buy a car! The rational that accompanies BTITR is that the main objective for insuring against death, tpd and critical illness is that should something hit you, your dependents would be in a very bad situation. That is why it is important to firstly, access who are your dependents, what kind of lifestyle your dependents require.
By the time you are 65-70, it can be assumed that your dependents are getting less (mom and pop most likely not around liao, children working can take care of themselves liao). By then, should u pass away, their impact will not be huge.
However, there is still a risk of total permanent disability(TPD). With regards to this, most TPD plans will stop insuring up till the age of 65. Pack that together with the increase possibility of getting critical illness, you will require large amounts of money. This is where it is either offset by:
- Monies from the cash from your retirement savings
- Covered under your whole life or limited whole life plan
- Children paying for it (this is real!)
This is why you need to save the difference that you save from BTITR from that of whole life. It is for the situation after the age of 65. If you spend it on buying sprees, then BTITR is definitely not for you.
This is when many would think a whole life or limited whole life would be better. My opinion is that at that age without less dependents, you need that money for treatment of disease. If its whole life or limited whole life, your payout will most likely be more than your savings. This is where you have to decide whether you want to balance this risk. If you can do without the big payout when you are after age 65, then term is a good alternative.
One dimension that i can think of that the payout + cash value after 65 won’t matter that much from savings: Inflation. With inflation your healthcare cost will escalate. By then your 100k whole-life might not be such a good medical payout compare to the cost of healthcare then. Do correct me if my thinking is wrong here.
For me, Its more of a limitation of the nature of job, limitation of budget and the acceptance that I can pretty much save on my own that i choose term as the main vehicle.
You would see that, I don’t even have spare cash liao. If my dependents increase, I would really need to cut back sia.
So what should you be buying? For me, what you should be buying will depend on
- At which stage of life you are at
- Number of dependents you have
- Number of dependents you will have
- Ability to save
You should be addressing your immediate concerns rather than ones that matter less to you now. The following is from my point of view what should be of high priority at different stages of your life:
This is not a one size fits all. This one fits into mine thats why I am putting this up. When you are young or just starting out work, your most probable dependents are your parents. If they are still working, that isn’t much dependents.Most advisers would recommend buying life plans whether its term or whole life now. This is not because it of high priority but because you are most likely with a clean slate of health. It is important to know which direction you should take and buy it soon to avoid the prospect of suffering from something and paying a higher premium or not being able to be insured at all.
As you grow older, get married have children, parents retire, you get into the great sandwich phase. Now the whole freaking world may depend on you. At this stage, your life plan is usually one of the most crucial. Along with that, you do not want to be injured or suffer from something that renders you unable to continue your job. This is where Disability Income comes in, which pays you a certain % of your last drawn salary should you be partially impaired or permanently impaired from performing the job you were train to do.The jury is still out for this one, due to limited knowledge of claims experience. I still do not know whether this is worth it or not. The understanding of the terms and condition is important here. For more on disability income, you can tune in to this 2 topics here and here in SGFUNDS on this topic.
If you look at the diagram, there is always one item that is of high priority. That is Hospital and Surgical or H&S plan. This is a guard against catastrophic medical bills such as those large operations that require you to stay in few days ICU, few days B ward and major operation costing such as 30k to 40k. What happens is that under the plan, you will pay a percentage of the total bill and the plan will take care of the rest.
If the plan is effective, it should shoulder the majority of your fucking big bill and you pay the small portion in cash or medisave. I say if it is effective, because the government of Singapore realise that it is not insuring well against fucking big bills thats why they did some keyhole econs changes.
Needless to say, this is the first thing you should be insured for, a must have. There are also H&S plans paying from the first dollar onwards. For more on these you can participate at the discussion here.
Finding an adviser
This shouldn’t be difficult! Why because there are so many advisers in shopping centers, bus stops, even computer shows! However, find one you can trust and service you well and knows his beans is hard to come by. So choose well. I wrote an article a few weeks back taken from the Straits Times on some good questions to ask your adviser, you can read them and get a feel of what to ask if you see one.
- Integrity and trustworthy. Needless to say without this one, we cannot maintain a long term relationship. This goes both ways not just your attitude of him, but him towards you. Its a sales job sometimes and if it doesn’t work out, give him a direct answer! Don’t just siam him and don’t reply his calls! I sometime do that in the past but that is more due to my character when i am busy i dun feel like calling or talking to anyone. So gotta apologise if any of you guys see this post.
- Knows his/her stuff. If he doesn’t thats ok if he can find out and get back to me. I don’t like people who patronise me by saying they will try to check but don’t get back to me when they cannot find or probably too lazy to find.
- A brain of his/her own. Ability to think out of the box and not be a herd follower. I realise that it is they way they are taught and the culture of the consultancy. I heard rumors of some particular IFA where there is little room for the adviser to sell things his own way. That to me is a kind of organisation limitation that prevents a good adviser from performing a good job. But heck, i believe it guards against out-of-line advisers.
- Must compare products. I bring up this because i am deeply disappointed with one of my adviser from an IFA. The advantage of an IFA to a tied agent is that he has access to more products from more firms. No product is the same and thus the needs of the clients need to be looked at so a comparison need to be done face-to-face. I don’t understand the concept of "we have people at the back who has come up that this is the best policy for you".That don’t sound right to me? I have a justification to be skeptical. I am not sure if its the product manager that is pushing this. This is also where you see the IFA or Tied advisors point of view. Ironically, it is my other 2 tied advisers that did this much better, but sadly its more of a apple and orange comparison most of the time.
- Don’t need to drive or drive big cars. This one don’t need. I have friends who prefer to have one that does. I prefer to be serviced by one who can explained his priority in life to me. I can always go and meet some where.
- Help me with claims and procedural matters. This is where value is added. We can do it but they will seriously value-add here.
- Experience/Older. I’m not strict on this one, but generally the ginger the older the better. If he/she is young but willing to learn then I don’t mind, but you always run a risk that they would drop out of the race and your policy being taken over by dunno who.
Here is where it gets tricky. I personally don’t have a systematic way of looking at plans. But i do have some objectives so its a question checklist to make sure that i do consider most of the stuff before i make my decision:
Most of the time, I had to worry about which plans are more cost effective for the meat that they come with. Its different for Disability Income and H&S as that is heavier on Terms and conditions understanding.
My Comparison of AIA Recommendations
The recommendations that I received is mostly whole life, limited whole life or on the occasional endowment and more strange limited whole life. This time, there are 3 recommendations. They are recommended as a direct replacement for my AIA Recovery Lifeline.
Some ground rules before we start. AIA Recovery Lifeline is
- a level-term plan covering Death, TPD and CI.
- For a 25 yr old non-smoking male, its term for 50 years till the age of 75 is 809 dollars per annum.
- that works out to be 67.40 dollars per month.
- Why did i cover to 75? I forgot the exact reasoning, but think it is because they only have that duration of term.
That is not the only level term i have. The other plan is from Asia Life Enhanced Crisis Assurance. Its
- a 40 year level term covering Death, TPD and CI.
- Total Premium paid is 594 dollars per annum.
- That works out to be 49.50 per month.
There could be 2 reasons for the drastic difference although both are 100k level term. One, being that the term is extended longer for AIA term and secondly, because of the "Branding" of AIA which is a internationally recognized insurance company as to Asia Life, a local insurer that not many knew.
This is one factor that many AIA, and Prudential advisors would love to compete on. It is up to one to decide if you want to pay that premium for the same kind of coverage. It is well known that Asia Life which is one of the smaller firms has chalked up the highest rate of investment return and paid high projected returns consistently for many years. That study was inclusive of heavy weights such as Prudential, Aviva and AIA as well.
In terms of rating of a insurer that is triple A rated, my feel is that it only shows the credit worthiness of a company. But in bad times like now, liquidity drys up. You want to borrow money also cannot. Furthermore, being "big". does it mean
- Your credit rating will remain as triple A rated for the duration that i have the policy?
- You can be cutting edge in your offering
- Your products are revolutionary and influence insurance trends
- Bring something new to emerging markets as a whole
- Be cost effective where it matters
- Provide superior returns to customers
- Avoid the fallacies and herd instinct of your peers?
- Reduce the proportion to subprime as you percieved the risk to be higher?
These are open-ended questions I would ask to AIG. Granted, the last i checked, they are one of the more considerable outstanding financial institution that I recall seeing.
Back to the comparison, there are 3 products we are talking about here. I would compare them against Asia Life Enhance Crisis Assuarance simply because of the objective towards my goal,my plan and it being the most cost effective. Granted, readers should take note that this ain’t a apple and apple comparison. But it is based on the suitability towards my overall plan and the way I view them.
A few things that I realise about comparing Term vs Whole Life vs Limited Whole life:
- Term is cheaper when you start comparing, but thats because you normally do it in your 20s and they normally isn’t build to last till 99
- In Full Whole Life you pay till you are 99 wheres normal Term, you pay until 65-75. Term is drastically more expensive when you are talking about 75 and above.
- Limited whole life is freaking expensive at the start, but do remember to factor in the years later you won’t be paying.
- Advisers will normally tell you this is the amount of premium you pay after X no of years. Not realistic. They did not factor in present value in their calculation.
- Perhaps that is why they wanna sell more limited whole life policy.
- The insurer get the commission near present value
- The adviser get the commission near present value
- You, the consumer has to worry about your returns because of inflation
- It should be noted that most advisers get their commissions out of the first 3-4 years of your policy, with about 85-90% of your total premiums in year 1 going to their commission, thus they have no inflation risks.
- Project Returns at 5.25% and 7.25%(last time) unrealistic. A Straits Times article shows that the best returns achieved by Asia Life is even less than that 5.25% (except asia life at 6.35 on average). So why the confidence you can get that projected long term going forward?
AIA S$ Life Plus
We start off by taking a look at AIA S$ Life Plus. This is a full whole life plan. So instead of stopping premium payment at the age of 75 for LifeLine or 65 for Enhanced Crisis Assurance, this one you would have to pay until 99 if you want that coverage to be in force after your retirement.
This comparison like the rest below is not apple and apple comparison. To compare more closely, It is better to compare Life Plus against a term plan with a duration up till age 99. Term premium starts getting more expensive after the age of 70 as compared to Whole Life. Thus my comparison is based on my objective, that is to insure against death, TPD and CI up till the age of 65.
On itself, Life Plus only offers coverage for Death and TPD. To cover for Critical Illness, they are throwing in a CI rider as well. From my experience, it seems that the majority of the premiums will be going into building up the cash value. Death and TPD by itself is not very expensive. I have a group insurance that insured for 50k Death and Major Illness for 8 bucks per month.
Thus out of the 3, the one that commands a higher premium is CI. The premiums for CI rider is non-guaranteed, which means that there is every likely-hood that they will increase the premiums for CI based on perceived increase in insurance risks. Total premiums paid is way higher then the term plans (65-75% more). However, as i mentioned before, that is factoring the cost of insuring from 66 till 99.
If my aim is to insured till 65, it makes no sense to get such a bloody expensive whole life. In the diagram below i have included Total Premiums Paid at Future Value when I am 65 and also discounted present value total premiums at 3% inflation expectation.Either way, I’m paying 3 times more than what I am paying for term for the same coverage up till 65.
By opting for term plus savings, I can save up till 1772 dollars per year. To get to the returns that was projected in the Benefits Illustration, My rate of return will need to be 3.3%. Far lower than the projected 4.43% (35% equities, 65% fixed income aka bonds). 3.3% is a conservative target that most of us can hit easily if our alternative is Singapore Government Bonds here at fundsupermart.
Conclusion: No go for me. Pretty made up my mind on this one.
AIA S$ MoneyBack Protector 25
AIA MoneyBack Protector is a non-participating 10-year premium term plan with the option of either 15, 20 or 25-year term coverage. This plan provides benefits for death and terminal illness, with double indemnity for accidental death. The premiums will be refunded at the end of the policy term provided that no claim is made during the policy term.
Basically, this plan provides:
- Death Benefit: Upon death of the insured, they will pay the insured amount less any amounts owing to them.
- Accidental Death Benefit: If the insured dies due to an accident, and death occurs within 90 days from the date of the accident, they will pay one hundred percent (100%) of the insured amount in addition to the insured amount of the Death benefit of your Basic Policy less any amounts owing to AIA.
- Terminal Illness: If the insured is diagnosed with Terminal Illness, AIA will pay from the date of confirmation of the Terminal Illness the insured amount less any amounts owed to AIA. Terminal Illness lump sum payment is an accelerate benefit that accelerates the payment of the Death Benefit of your policy. Once this accelerated benefit is paid or deemed payable, all other benefits will be terminated. Terminal Illness means a condition, which in the opinion of 2 registered medical practitioners is highly likely to lead to the death of the Insured within 12 months. The insured must no longer be receiving active treatment other than that for pain relief. (Under this definition, its like you are almost nearly dead)
- Return of Premiums Benefit: The total annual premiums paid will be refunded without interest at the end of 25 year policy term, provided that no claim is made during the policy term.
- Convertibility: Convert this policy to any regular premium whole life or endowment up to 100% of the insured amount without evidence of insurability before your 70th birthday.
My take: This policy is cute. I have a hard time figuring out why this is recommended in the first place. I see alot of cons more than pros:
- It doesn’t insure me long enough. A 25 year plan will terminate at age of 51. That is still a long way from 65.
- I realise that with the way premiums are paid, your surrender value will only break even when the plan terminates. Not that it matters to me. It looks like another "I pay you valuable present value monies, you return me less valuable future value monies" . Your 10,300 dollars that you finish paying in yr 10 is more valuable then the 10,300 dollars they return you at yr 25. That is even worse considering we are in an accelerating inflationary environment.
- You pay 1030 bucks and you do not get full CI coverage? This one sounds more like a death and accident plan to me! And we are paying so much for it! The bulk of the cost is normally the CI portion. This one doesn’t contain CI, so why do I pay so much for this?
Given the things this policy insures against, I am wondering why I used the same matrix below as that of the previous analysis to analyse this. The other 2 term plans, insuring more than this cash back plan. To offset this, I should be basing my analysis on my group insurance that insures death, TPD for a mere 192 dollars per annum. If i do that i will be able to save 838 dollars for the first 10 years. However, for the next 15 years, i will incur more for the group insurance at 192 dollars per annum. If you look at the aggregate figure, I would have save 10650 dollars. Thats even more than the 10300 payout at the end of 25 years! And I’m calculating at 0% interest!
Conclusion: It begs the question: does the convertability and accidental death benefit really commands that premium? I don’t think i wanna find that out after 25 years.
AIA S$ Guaranteed 15 For Life
A Limited whole life plan at last. Something that sounds promising. I have mentioned previously that Limited whole life has its pros and cons:
- You do pay more premiums at the start.
- With large premiums comes premium servicability risks.
- You own the policy after 25 years. At which, you are covered for life. If you are one that wants to hedge the risks even after you passed 65 and beyond. This is a good alternative
- This actually frees up budgets when you get to a stage where you will see your budget tighten when the children grows up. Your insurance needs are important then and since you have own the policy, this free cash can be put for other purpose.
This plan, does not cover critical illness. It seems like most CI accelerating riders are sold with whole life like this. The rider will set you back 757 per annum. This one altogether will set me back 310 bucks per month. I would say that at this moment i cannot afford any more limited whole life based on my budget. A 15 year one is a real liquidity bloodsucker.
For the folks whose earning power tends to be stronger when they are before the age of 40 (Regulars in the army for example.), this i feel is good.
However, AIA might not offer the cheapest Limited whole life vs projected guaranteed and non-guaranteed value. Do look for other alternatives as well.
One thing you will realise is that the terms for limited whole life vary quite wildly. I think the different insurers wouldn’t want to put out durations that are similar to a competitor. Why? If you can compare a 10yr 100K limited whole life plan with another one similar side by side, it will most likely result in the consumer choosing the cheapest one for the same projected returns.(Although how do you judge projected returns? They are after all projected!)
Conclusion: No budget for this. Expensive. I will rather rely on my current term plan.
Some Last Thoughts before I call it a late late day
You may ask: What about retirement planning and investment? Where to put your money for the long term?
I think i would rather take that out of the equation now. My brain is drain from all these insurance stuff.
As folks can see, it is difficult for a noobie like me to dissect such things. I do not know why they can’t make it more simple. Guess had they do that, we might think about things differently then.
Insurance does not end after you purchase a plan.Do sit down with your adviser periodically to access your needs at different point of your life. Many of us fall into that loop hole of saying "Orr, I got insurance liao, I don’t need to buy more.". We may sometimes be in a good position to judge what we need, but we have our limitation, that is why we engage adviser to consult and help evaluate such stuff. They might see something you don’t see.
Just do your best to dissect sales talk from factual and helpful advice.
Lastly, most of my insurance stuff, I learnt it from others. Without interaction in SGFunds, I would not uncover so much information (and mis-information) and contrast with how others settle their insurance needs. You can get most of the resources here.
Disclaimer:The writer is not a certified professional planner of any sort. All advise shown here are opinions based on the writers interaction with other parties and self-fact finding. In no way should they be used as the only advice to make final decision. What works for the writer may not work for you.
Do seek a qualified professional to access your needs before purchasing any products. He is not affiliated with any companies mentioned in this article. The writer holds no liability for any mis-advice causing loss of capital or other form of assets due to information gathered from here.