Monday, May 12, 2008

Cost of Life Insurance

Definition of Insurance
I flipped through my Times-Chambers Dictionary to look for the definition of Insurance and it was defined as follows:

"Insurance is a guarantee that you will receive money if something is lost or damaged, or receive a replacement for it, by a financial company in return for regular payments you make to them."

It did not specify what was lost or damaged. It can be a hard asset or even a life. As most of us are likely to relate about loss of a human life when we talk about insurance, I like to talk about the ways where we can get money from the Financial or Insurance Company when a life is unfortunately lost.

Each type of insurance have their purpose, strengths and flaws. There are cheap and expensive ways to get covered. I just like to share with you the type of Insurance plans you can get in Singapore and I'll rank from the most expensive ways to the cheapest with the Premium:Coverage Ratio.

The 10 Insurance Plans to get money if a human life is lost

1) Single Premium Endowment/Investment Linked Plan
<~$400k Lumpsum for $100k cover. Ratio - 4:1>
* Main purpose is to maximise current assets, not protection.
* The cover is more like a special benefit than an insurance.
* Eg, you save $100k, you get a 25% extra coverage from the Premium you put in.

2) Single Premium Life Insurance including Universal Life plan
<. Pending premium info. Ratio estimated to be 1:15>
* Such Plans are normally for high networth people who are ready to plough in a large premium to ensure coverage for life. Eg $150k for a $2 million cover.
* They get it as part of Estate Planning Purpose. Part of this single premium will grow in size and part of it to pay off the insurance premium.

3) Endowment Plan
<~$250/mth for $100k cover till age 65. Ratio - 1:400>
* The ratio is terrible but some people are told to get protection via an Endowment Plan. It is a lousy choice because its main purpose is to save, not protect.
* The ratio will be worst for a Cash-back Endowment Plan

4) Whole Life Insurance Plan with Limited Premium chosen
<~ $200/mth for $100k wholelife cover. Premium payable till age 65. Ratio - 1:500>
* The $100k will grow with the Bonus declared by the Insurance Company
* There will be some savings component and cover is for Life
* The premium payable will be higher if Premium Term is shorten

5) Whole Life Insurance Plan without Limited Premium
<~$170/mth for $100k cover. Premium payable till age 85 or 99 Ratio - 1:588>
* As described for Limited Premium Life Insurance Plan

6) Term Plan with Whole Life Cover
<~$75/mth for $100k Whole Life Cover. Ratio - 1:1,333>
* The $100k cover will remain as $100k till age 99

7) Term Plan covering till X years
<~25/mth for $100k cover till age 65. Ratio - 1:4,000>
* The $100k cover will remain as $100k till age 65
* Renewability is possible for some plans at end of the term

8) Decreasing Term Plan covering till X years
<~$15/mth for $100k cover till age 65. Ratio - 1:6,667>
* The cover will decrease Proportionally over the years from age 30 to 65.
* One is not allowed to renew at end of the term.

9) Yearly Renewable Term Plan
<~$8/mth for $100k cover. Premium goes up with age. Ratio - 1:12,500>
* Often added as a rider in a Whole Life plan or ILP. Premium get very much higher as the insured gets older.

10) Group Yearly Renewable Term plan
< ~$6/mth for $100k cover. Premium goes up with age. Ratio - 1:16,667>
* As described above on Yearly Renewable Term plan, except that it was taken on a group basis.
* Sometimes under an organisation, sometimes under a company where group discounts are given.
* If the group is to be disbanded or if ones leave the group, the insurance may not be portable.

Conclusion - Insurance Can be Real Cheap!!!
* If there are people who are still grossly underinsured, citing premium as the main concern. Show them how cheap Insurance can be.
* It is also to show why few people want to recommend a Term Insurance.
* If I want to be super rich, I'll show them the choices from no. 01.
* If I want to be super poor, I'll show them the choices from no. 10.
* Life is hard as a Financial Consultant. If we show people no. 08 or 09, we can even be blamed for being unethical or greedy by some people just because we did not recommending no. 10.


Anonymous said...

What about revosave and vivo life from NTUC? Have you calculated whether they are value for money?

Khiat Han Hwee Adrian said...

Revosave is an Anticipated Endowment Policy. For protection, it is very lousy. For Savings, yield is around 3.4%pa over 20 years if the savings option is chosen for its yearly cashback. If Investment option is chosen, yield is around 3.7% over 20 years basis 5% Investment returns minus management charges.

May not give the best yield for an endowment plan, but there are people looking out for the cashback option. Comparable to similar plans in the market, it still gives better value.

For Vivolife, I will only recommended for a foundation cover meant to cover the permanent CI needs. It should not be taken to cover the temporary CI needs. Term insurance is still recommended. If compared to many other similar plans again, it is still value for money.

I'm comparing apples and apples, pls do not take my comment to compare endowment and investments.

wilfredling said...

Adrian Kiat said: Life is hard as a Financial Consultant. If we show people no. 08 or 09, we can even be blamed for being unethical or greedy by some people just because we did not recommending no. 10.

Perhaps the only solution is fee-based. In this way, the FA is compensated for giving advice and rather than compensated by the product sold. The trouble in Singapore is that not many consumers are willing to pay for advice.

Khiat Han Hwee Adrian said...

You are right. Fee based is a very good way to ensure consumers get the proper and unbias advice.

The environment is still not there for fee based planning because most people are willing to provide free planning services. I am one of the guilty ones now. Its very hard work and end of the day, no guarantee of any reward. Over time, we can get burnout for trying to be professional without monetary compensation.

I am working towards achieving the capabilities and confidence of charging a fee in the new firm. Got lots to learn from advisers like you, Patrick and David.

jack2304 said...

This is jack. In this fast life we don't know what will happen next moment so I suggest all to get insured so that It will not risk any one in your family if any thing goes wrong. So please choose the safe way. As it could well help you when your facing any kind of health problems also.
By getting Insurance you can also enjoy other privileges that are been provided by the Big corporate to get insured with them. So please make insurance for you and also for your family.

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