Life insurance coverage against death, TPD and critical illness is necessary and most people I know do not have adequate coverage. They think it is expensive to get themselves adequately covered. However, that is not the case. Adequate life insurance can be affordable, yet leave you with good cash flow to live life.

First and foremost, the basis of insurance is for protection.

When we purchase insurance, we sought to address a particular health risk that would create monetary challenges for ourselves or our loved ones.

Some of the most common ones are:

1. The risk that if you passed away, your loved ones will have a difficult time getting on with their lives, servicing still outstanding debts and mortgages. We buy life insurance against death for this
2. The risk that if you suffer from some major illness or require a major hospital stay, you do not have the money to pay for astronomical inpatient or outpatient medical bills. We buy hospital and surgical plans for this
3. The risk that if we suffer from an advanced stage illness, we do not have an income as we have to stop work, and we readily need money for miscellaneous treatment costs and alternative treatment. We buy critical illness plans to address this

There are more health risk that insurance can hedge, and a good primer on insurance is listed out in this FREE E-Book which I talked about here. If you are not sure what kind of health risk and what kind of insurance hedges those risk, this book helps you understand.

How much protection do you need to purchase? Will buying this protection cost a bomb?

The above table shows how much it would cost you to get covered for death, total permanent disability and advanced stage critical illness if you purchase the term insurance when you are less than 30 years old, 35 years old, 40 years old and 45 years old.

Getting adequate coverage can be pretty affordable! It would take $170 per month to insure $1 mil death and TPD plus $500,000 in late stage critical coverage at 30 years old. 

MoneyOwl, an insurance portal that allows you to compare and purchase insurance plans of companies such as Manulife, Singapore Life, Tokio Marine, Aviva, NTUC Income, Raffles Health Insurance, has come up with a set of life insurance comparison tables.

These life insurance comparison tables lets you compare and easily see for the same coverage, how much annual premiums you will pay if you purchase from each insurer.

Let us go through each sections.

Term Life Insurance for Death and Total Permanent Disability (TPD) Protection

The first area of insurance protection, protects 2 areas:

1. the insurance assures your dependents that if you passed away, they have $X to maintain their life for Y years
2. the insurance assures a sum paid out if the assured suffers from permanent lost of both hands above the wrists, both feet or above the ankles, one hand or one foot, or that the assured is unable to perform 3 out of 6 “Activities of Daily Living”

For example, suppose the assured K has the following profile:

• Earns $50,000/yr
• Youngest child will be productive (graduated from university) in 22 years
• Amount of outstanding debts other than mortgage is $2500
• Cost of Education when required $180,000

The total amount of coverage that K requires, works out to be roughly $1,282,500, based on MoneyOwls death and TPD protection calculator. Roughly, the insurance will need to cover the number of years of income lost due to the death event, and the debts that K have.

The table below compares the term life insurance to age 65 for a coverage of $1 million. This is for a male, non-smoker :

For Jun 2019, Tokio Marine have been the most competitive due to a massive 20-30 limited time discount. Update: I realize I made a mistake. Tokio Marine revised down their premiums for Term Assure (II) massively as a whole. This made their plan very competitive. Aviva also reduced their premiums for the quarter.

The annual premiums for the term life insurance plans change from time to time so do not take it that once you see it here, the figures will not change.

From time to time, some term insurance distributors will have discounts on premiums if you purchase a $1 million policy. The comparison tables have factored into the price above if MoneyOwl are aware of these discounts.

Use these tables to:

1. find out how much it will cost you to cover the amount you need
2. see how wide the annual premiums can be for generic coverage
3. find out which are the cheaper ones and more expensive ones

The younger you can get yourself enrolled the lower the annual premiums to pay.

The cheapest premiums for different age bands are also different. Aviva, FWD and Singapore Life looks to be the most price competitive.

If you wish to get coverage that is not $1 mil but less or more than this, it is possible. Go through their portal or contact them here.

The follow table compares the annual premium for death & TPD coverage for female:

Again, the annual premiums for woman is cheaper with Tokio Marine due to the promotion discount.

Term Life Insurance for Critical Illness Protection (inclusive of Death and TPD)

Critical Illness Protection covers you, on top of the death and TPD protection mention previously, 37 major critical illness as defined by the Life Insurance Association (LIA).

These are illnesses that have reached advanced stage. Readers should be aware that there is critical illness protection for illnesses that are diagnose in the early stage. This is NOT that.

Typically the assured K tries to cover 3 to 5 years of his/her income and a sum of money for alternative treatment.

So if the assured K:

1. Earns $50,000/yr
2. Plans to have $100,000 for alternative treatment and out of pocket treatment

To be assured, K should be looking for a coverage of $250,000 to $350,000.

The following table shows the coverage for male for a sum assured of $500,000 to age 65:

For the quarter, FWD, Singapore Life and Tokio Marine are the most price competitive.

The coverage amount is less than a pure death & TPD, but the premiums is more expensive than death & TPD primarily due to the cost of the critical illness portion.

The following table compares the coverage for the female in terms of critical illness:

Again, the annual premiums for woman is cheaper with FWD, Aviva, Tokio Marine and Singapore Life being the cheapest.

Compare, Get your Quote and Purchase Direct Today

You can look up, compare, then purchase the following term insurance direct from MoneyOwl:

1. Aviva
2. Manulife
3. Tokio Marine
4. Singapore Life
5. NTUC Income
6. Raffles Health Insurance

Get a quotation from MoneyOwl straight, and then the good folks at MoneyOwl will guide you through the process of purchasing:

Note: If you are not so well verse in insurance protection, unsure whether the amount, or the kind of protection is what you need, yet you go to MoneyOwl because you think they will not hard sell you, you can talk to them.

While the process is DIY, they will be able to explain some of the nuances specific to the insurance protection segment you are asking. This will help you make the best protection decision.

You are in control all the way.

To purchase FWD Insurance, you can purchase the term insurance directly from them on their web portal here.

For Term Insurance of Smaller Amounts – Direct Purchase Insurance (DPI)

While the illustration shows term death and critical illness coverage of $1 mil and $500,000 respectively, you can vary the coverage based on your needs.

It does not mean the coverage is fixed.

However, MoneyOwl have shared that for term life insurance (death and TPD coverage only) that is less than $400,000, it would be more value for money if you purchase it directly from the insurers under the Direct Purchase Insurance (DPI).

The DPI is the government’s execution of one of the recommendation, to create an avenue for consumers like you and me to purchase term life and whole life insurance from the insurance company direct, and not have to go through agents.

All 12 insurers in Singapore have direct means for you to purchase, though they may be hard to find.

If the amount is $400,000 or more, or if you require critical illness coverage, then the term life insurance premium comparison table above is valid.

Explaining the Credit Rating of Insurance Companies

An insurance company credit rating is the opinion of an independent agency regarding the financial strength of an insurance company. An insurance company’s credit rating indicates its ability to pay policyholders’ claims.

The following table enables you to gauge the credit rating of insurance companies:

This article is a collaboration between Investment Moats and MoneyOwl. The views are of InvestmentMoats.com alone. I am an existing customer of MoneyOwl and recommend MoneyOwl due to the quality of the product, the service and the integrity of the people behind it.

Here are the Price comparison across the insurers during the Last Quarter in 2019 Mar

This is so that you have an idea of the price changes since last quarter.

Term Life Insurance – $1 million Coverage for Male and Female

Term Life Insurance with Critical Illness – $500k Coverage for Male and Female

Logs

2017 December Changes

HSBC Prices came down in the quarter. The prices were at least 17% higher last time around. We see some reduction in prices.

Prudential have reduce prices for Term with Critical Illness coverage in the quarter. Prices was at least 7% cheaper for life insurance with critical coverage. The plans without critical illness coverage stayed the same.

AIA comparison was taken out of the table. AIA secure Term Plus (II) Plan only provides fixed coverage duration for 5, 10, 20 or 30 years. In DIY Insurance’s comparison the terms are 25, 30, 35, 40 years.

Technically only the 30 years can be shown.

Also, since their plan do not includes total permanent disability (TPD), they were taken out of the comparison since it would not be apples to apples comparison.

Singapore Life is included. A new insurer is in town. Like FWD, in terms of their credit rating is low, all life insurers in Singapore are under the Policy Owners’ Protection Scheme, which protects up to a $500,000 cap on aggregated guaranteed sum assured.

Their prices are shown to be very price competitive.

2018 March Changes

AXA have reduced their premiums overall by 5.3% since last quarter across the various age band.

FWD insurance reduced their premiums for male term life insurance purchased when the male is 30 years old and below.

Singapore Life raised their premiums across all categories by 3.6%.

2018 June Changes

FWD insurance reduced their premiums for male term life insurance purchased when the male is 30 years old and below.

Singapore Life raised their premiums across all categories.

2018 Oct Changes

Aviva insurance premiums have went up since last quarter.

So has Manulife‘s premiums.

Both AXA and Singapore Life‘s Premiums have went down.

2018 Dec Changes

I am going to cover some of these insurance retirement plans, since I have the resources to do so.

I am doing this in order to let readers see it from my perspective.

This is so that, if you met up with an adviser and this is put in front of you, you got another way of looking at it.

Since I written a whole section on retirement planning & financial independence, it does make sense for me to view these plans, putting those considerations in mind.

AXA Retire Happy Plus belongs to a class of limited payout retirement plans.

However, specific for AXA Retire Happy Plus, there is an option to accept payout over the lifetime (till age 99 years)

The general idea is:

1. they are an accumulating plan then during a predefined age, it starts paying out cash flow till the assured passed away or when the end of the tenure has reached
2. the cash flow payout contains a guaranteed component and a non guaranteed component
3. the non guaranteed component will depend on the investment performance of a participating fund
4. both the guaranteed and non guaranteed cash flow payout increases over time, at 3.5% per annum to combat inflation
5. there is minimal death benefit since this is not the overall goal of the plan. Should the assured passed away, the death benefit is 101% of the premiums paid
6. a total permanent disability multiple rider that pays out in lump sum additional 5 times of your first selected retirement income upon diagnosis of TPD. Like all TPD policies, it is in effect till 65 years old
7. premium waiver riders can be attached to the plan (read what are premium waivers)
8. you can choose to keep the cash flow payout with them, and you will earn a non guaranteed interest rate, benchmark against a basket of fixed deposits

The following illustration from the brochure explains things better:

Sam choose to contribute premiums over 25 years and chose to payout 5 years later at age 61.

Sam can choose different duration of premium payments from 5, 10, 15, 20, or 25 years or a Single Premium (one lump sum).

Sam can choose when the retirement payout starts provided it is 5 years away from the last premium payment.

In this illustration, Sam chose to pay out all his accumulated assets over 15 years as cash flow. Same has a choice of 15, 20 years or lifetime.

At this point I think AXA Retire Happy is a rather flexible plan. A lot of plans leave me wanting because you cannot contribute a lump sum or that you cannot space out the distribution over the lifetime.

Regular Contribution, with 20 year payout starting at 65 years old

For some future comparison, we generate for a 40 year old (close to what I am going through), paying 10 years of $50,000/yr premium, and starting our cash flow distribution at age 65, for 20 years:

You notice that both the payout starts low before increasing over time.

Some retirees will like this because they see the 3.5% escalation as protecting their purchasing power over time.

But how do we measure the performance?

Measuring the Internal Rate of Return of the Plan

The rate of return that you will get, depends on the performance of the participating fund.

When you purchase a cash value insurance policy like this one, you are transferring the investment management to the insurance company.

I usually use the above diagram to illustrate how you should look upon your wealth management. The same concept is applicable to your insurance policy that has a cash value.

You feed your policy by paying the premiums through your disposable income. The insurance company takes your premiums and deploys it into equity, bonds and cash. The income earn from equity and bonds is fed back within the fund itself.

The manager determines how much cash back it gives back to you.

The table shows the rate of return of the participating fund for AXA Retire Happy Plus. In some years it is positive, and in some years it can be negative.

I want you to note the average performance over the past 3, 5 and 10 years.

Your rate of return, is determined by the rate of return for the participating fund.

In the benefits illustration, you will see the rate of return.

The illustrated yield at maturity, is equivalent to the internal rate of return I usually compute.

What it means is that if your participating fund achieves a rate of return of 4.75%, your internal rate of return over this period (40 years old to 84 years old, 44 years) is 3.75%/yr.

This 3.45% includes the 3.5% inflation escalation.

If the participating fund yields 3.25%, then the rate of return is 1.92%.

Think of internal rate of return as the “interest rate” you earned for contributing your money over this 44 years, and what  you get per year.

With this you can compare it against your Singapore savings bonds or Singapore government securities.

The 10 year yield of the latest Jan 2019 Singapore Savings Bond is 2.45%.

What this means is that potentially the Singapore Savings Bond would yield more than this AXA Retire Happy Plus.

Based on the historical returns of the participating funds, it might not hit the illustrated 3.75%/yr. Of course, we won’t know about the returns of the future but we can reference from the past.

What if we only compute the internal rate of return of the guaranteed portion?

We computed the internal rate of return of the guaranteed portion and it is 1.29%.

This means that if you contribute and withdraw from this policy and it only earns the guaranteed amount, its like earning only a 1.29% interest per year.

I think your returns should sit somewhere between 1.92% to 3.75%.

The Expenses and Costs to the Policy Holder

Based on the illustration, the policy holder will pay a premium of about $499,973 in total over 10 years.

The total distribution cost, which is the cost from the premiums that are used to pay for advice, commissions to your adviser and the firm, is $53,617.

That is about 10.72% of the premiums.

The total expense ratio shows the expense incurred from managing the participating fund. At an average of 10% for the past 3 to 5 years, that looks rather high, compared to some of the other participating funds.

What about a Lump Sum Premium, Life time Distribution?

Due to its flexibility, I thought it is appealing for me to have the following permutation:

1. Lump Sum Single Premium Contribution
2. Distributing Cash Flow for Lifetime

So I got my friend to come up with a single premium quote for $200,000 in premium at 40 years old and start taking annual cash flow from age 50 to age 99.

In all honesty, after getting this, I thought it would be better to pay a single premium at age 45 years old and then take distribution 5 years later at 50.

In that case, it would make this really look like an annuity. But I shall not trouble my friend to do this.

From the income schedule, at 50 years old I could get an annual income of $3,361 to $6,771.

This will increase overtime to a range of $18k to $36k at age 99. I think I will struggle to think what I can do with $300/mth

The internal rate of return, depending on the investment rate of return, is higher at 2.02% to 4.05%.

It is higher compared to the previous regular premium quotation.

I think what made it lower was the escalating nature. Usually, if a policy have this feature, they will start the income distribution at a lower base. This is the same for the CPF Life with Escalating feature.

The yield on the single premium Retire Happy Plus looks far lower than contributing to the CPF Life annuity.

I believe the main reason is, unlike the Retire Happy Plus, CPF Life pools the people’s resources together and thus you will receive mortality credits, which boost the return.

The distribution cost on this single premiums is $11,647. Against a policy cost of around $200,000, the distribution cost is 5.8% of the premiums paid, much lower than the 11% for the previous regular premium policy.

Suffice to say, I feel compelled to contribute to CPF Enhanced Retirement Sum then this policy.

Summary

While on paper, I like the flexibility of contribution and distribution, the internal rate of return, when compared against similar retirement insurance plans, are not the highest.

You could be mistaken that the escalating payout feature is a major advantage.

The internal rate of return of the policy based on guaranteed, non guaranteed returns tell us that if we compared against a non inflated payout product, the non inflated payout product might give you more cash flow over time.

This policy could be modeled as a single premium annuity, but it does not give you that return.

The upside of a retirement plan is that, for an annuity, if the assured passes away, you might only get a smaller bequest.

For such a retirement policy, should the assured passes away, the remain death benefit or cash flow, would be passed to the next generation.

I will probably profile another similar retirement plan next week, then we see how that plan measures up to this one.

A plan like Retire Happy Plus is meant more for retirement distribution.

Whether it is suitable for you or not, it will depend a lot on your overall plan. From my experience, plans like this do not work on its own, but as part of a retirement strategy.

If you are unsure such a plan fits into your overall strategy or not, yet you would like someone that is competent, trustworthy enough to review your retirement strategy, let me know.

I can put you through to my friends who have integrity, and may be able to help.

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We went through some policies such as Aviva’s MyRetirement Choice and OCBC PremierLife Generation showing the projected returns the policy holder could potentially get.

Through the article, the biggest determinant of the policy performance is in the investment return of the participating fund.

So how is the reality versus projection.

We take a look at some historical data today

The Return Performance of your Cash Value Policies

For the uninitiated, we can group insurance protection into 2 groups:

1. those with cash values
2. those without cash values.

Your whole life insurance, limited whole life insurance, insurance savings endowments and universal life policies are policies with cash values.

When you buy such policies with cash values, you are TRANSFERRING the job of building wealth to the insurance company.

Your insurance premiums paid contribute to participating funds, which are either the main funds or sub funds formed by the investment managers in the insurance companies to meet the objectives of the various cash value insurance policies.

How well your insurance policies do eventually in terms of returns will depend on the performance of the participating funds.

The participating funds invest in a combination of:

• equities
• government and corporate bonds
• property
• cash

The following is taken from the Benefits Illustration (BI) , which explains your policy in detail.

The surrender value illustrates to you the projected surrender value you could get, if you liquidate your policy at that specific year, or age.

Notice that there are 2 sets of figures, one for projected at 3.25% investment return and one 4.75% investment return.

This is to give you an illustration of the potential of your policy.

The sales conversation often is lead in such a way that the insurance adviser and the client were discussing as if the 4.75% return is given.

But is it the case?

Let us take a look some data.

Performance of Investment Returns of Insurers over Different Periods

Business Times recently published an article name Upbeat forecast lends hope of better returns for insurers.

In the article it provides some data points on the investment returns of different Singapore Insurers and their average returns:

This data is much more comprehensive than the 7 year historical performance data we have previously.

Each row shows the average return over that X number of year span.

For example, the first row shows the 11 year average return which spans from 2006 to 2016. AIA is 4.36%/yr. The last row shows the average of the insurers over that time frame.

Some interesting things I notice:

1. The large insurers such as AIA, Prudential and GE tops the number of times their returns across different time frames with top qua-tile returns
2. The 11 year period is a period where the market started off lower, went on a dip and eventually recovered. In this period the return was 4.14% on average. Tokio Marine and Manulife beat the 4.75% investment return, Prudential came close of hitting the 4.75% investment return that insurance company use for illustration
3. The 9 year period seems to be a period where there was a massive plunge follow by a 8 year recovering market. The average return is 3.13%
4. The 8 year period is the best period, where they start at the bottom of the market in 2009 going all the way to the market highs in 2016. The average return of 4.97% beat the target of 4.75%. Firms like AIA, Tokio Marine and Prudential did very well.
5. The 2 year period highlights the bear market in 2015 and the recovery in 2016. The average return is 2.47%. This is good in that in a challenging climate, the fund’s allocation actually  create absolute returns
6. Given that Tokio Marine and Manulife did well on a 11 year basis, and that they failed to match up across various years, the conclusion here is that you cannot choose which insurer to go to for a higher investment returns because returns among these active managers are volatile.

The difference when you put your money in an insurance policy is that you have transfer the investment scope of work to the insurance company and in this case across different time frame, the average return has been positive.

Comparing returns versus stocks, REITs and bonds is not an apple to apple comparison.

If we compare risk adjusted returns, the picture might be different.

In some time frame, the insurers was able to hit 4.75%. Prudential and AIA in particular have shown good investment returns over various time frame.

Yet the Participating Funds of insurance companies struggle to hit the 4.75% target.

Insurance Policy Owner’s Returns Will Be Smoothed, after Costs

If you read your benefits illustration, they will tell you that your projected returns depend on the investment performance of the fund.

There are cost deductions from the returns of this fund.

What this means is that the returns are LOWER than this.

They certainly do not look that far off from the surrender or maturity value of the past insurance policies my readers have told me about (read Does your insurance savings plan give you 3% to 5% returns?)

Summary

This updated table, while not providing the compounded growth, or XIRR does show evidence that some insurers like AIA and Prudential were able to generate investment return that is close to what was illustrated.

However, it is not a given that these insurers who achieve higher average returns would continue to do so. A good example would be Tokio Marine achieving a good 11 year average return and their poorer performance in recent years.

Taken as a cohort the average returns are lower. The returns will depend on your luck during this 10-25 year time period when you are holding on to these participating policies.

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