BTIF Method vs ILP/WL

[xdemolicx]

**Edited from ILP to WL comparison instead

Hi guys. I was advised that i had posted in the wrong section so decided to post again here

Here is some of my profile: 28 yrs old, Male, Non-smoker.

I am doing some comparison of BTIR vs ILP/WL plans and I am not sure if i am doing it correctly.

Term Life with Death benefit $500000 and CI coverage $500,000 (30 years only)
Annual Premium: $1200
Total Premium After 30 Years: $36000

WL with Death benefit $500000 and CI coverage $500000 (For whole life)
Annual Premium: $6100 Only need to pay 20 years
Total Premium After 20 Years: $122000

Annual Difference: $4900

Assuming on equal grounds, and using 30 years as the main consideration factor since i will need to pay my term premium for this duration, if i were to invest in a typical stock which generates a 4% return (realistically) on my own. Through 30 years, i would have gotten the below:

Annual contribution: $4900
Total Capital after 30 Years: $274000
Profit: $127000

Using the above scenario, while BTIR gives me $127000 profit, i lose the death and CI coverage of $500000 after the 30 years term.

WL on the other hand, although i will be paying $122000, even after 30 years, it still provides fair coverage of $500000 for death and CI when i am at the age of 58.

In this case, isnt the WL a more suitable solution for my situation? Unless i am confident that my stock investment will provide me a much much higher return that exceeds $500000, but this will not be realistic to assume such a case...

This seems to only make sense if I continue to invest $4900 even after 30 years.. until age 75 where my WL policy payout will drop from $500000 to $100000 for both death and CI. Not sure if i am right in this aspect...

Anyone has any advise?

 

[01asdf]

You're comparing 150k ci with 500k ci.

I'd suggest getting quotes for early ci only policies as an alternative to having it as a rider to your life insurance.

 

[SBC]

Siam ILP. With 30 years horizon, I will recommend you a $150k SA life policy as base. Choose limited payment of 15 to 20 years.

 

[xdemolicx]

You're comparing 150k ci with 500k ci.

I'd suggest getting quotes for early ci only policies as an alternative to having it as a rider to your life insurance.

Hello. Thanks for the advise. I edited my post so that the comparison is on more equal grounds now.....

 

[xdemolicx]

Siam ILP. With 30 years horizon, I will recommend you a $150k SA life policy as base. Choose limited payment of 15 to 20 years.

Hi. I updated the comparison to a life plan instead of limited payment of 20 yrs.. hopefully i am doing this correctly.

 

[anfielder]

Mortality charges for ilp increase exponentially with age. If you want coverage for the long term, steer clear of ilp.

(Heck, steer clear of ilp under any circumstances)

 

[xdemolicx]

Mortality charges for ilp increase exponentially with age. If you want coverage for the long term, steer clear of ilp.

(Heck, steer clear of ilp under any circumstances)

How about WL with limited payment term of 20 years?

 

[anfielder]

How about WL with limited payment term of 20 years?

Have not done any analysis but seems like you just pay more over those 20 years so that you can stop paying after that. No such thing as a free lunch.

 

[doody_]

Well the difference is that your WL policy is essentially useless to you when you're alive. Only your kids will benefit from the payout when you pass away. Or you could cash out your WL, but then I don't think you will get a compounded 4% return.

With stocks, you're free to sell them and enjoy your stacks of cash once you retire.

If you are concerned with leaving money for your kids, I can see why a WL policy might be useful. That's 500k payout which is certainly more than your profits from investment.

 

[FP_IFA]

Quite a few errors in calculation there. For one, confirm if it is monthly or yearly premium first. Then recalculate again.

 

[xdemolicx]

Quite a few errors in calculation there. For one, confirm if it is monthly or yearly premium first. Then recalculate again.

Thanks for pointing that out. I am using annual premium as base calculation as it would make more sense for investment instead of me paying a fee for just a small buy in of the stock.

Is my calculation more accurate now??

 

[xdemolicx]

Well the difference is that your WL policy is essentially useless to you when you're alive. Only your kids will benefit from the payout when you pass away. Or you could cash out your WL, but then I don't think you will get a compounded 4% return.

With stocks, you're free to sell them and enjoy your stacks of cash once you retire.

If you are concerned with leaving money for your kids, I can see why a WL policy might be useful. That's 500k payout which is certainly more than your profits from investment.

Thanks for the advise. Yes that is true n sumthing i will take into consideration. The WL coverage for death and CI will only benefit my dependents but not so much on me while stocks if i suay suay kanna CI, the only thing i should do is cash out n enjoy e rest of my life.

 

[MikeZhang]

You don't really need the multiplier in whole life. Multiplier is the same as having term plan till that particular age. So buying a term plan with a based of 100k whole life plan save more cost. Rather than throwing everything into whole life plan and you have no money to invest or save.

 

[FP_IFA]

Thanks for pointing that out. I am using annual premium as base calculation as it would make more sense for investment instead of me paying a fee for just a small buy in of the stock.

Is my calculation more accurate now??

Yup. But if you are using a whole life plan with multiplier, you need to be aware that the multiplier will drop after a certain age (usually 65 or 70) and you have to see if the death benefit at that point is at what value.

But generally, if you want to have a cover stretching beyond 80, yes a whole life plan is better. But also take into consideration should the claim comes in the early years, term would have been the cheaper option.

 

[Shiny Things]

So there's a couple of things you need to think about to make the comparison more correct.

Firstly the investment returns. Your average stock's going to return about 7%; and your average fund in an ILP is going to return around 5% (because the fund is investing in the same stocks that you are, but they're taking about 2% in fees off the top).

Re-run your comparison with those different return numbers; and add in a bit for the mortality charges in the ILP (I don't know exactly how large they are); and then come back to us.

 

[chopra]

I dont believe 500k wl + 500k ci is only $6000 per YEAR + pay for 20yrs.

Did a check on comparefirst.sg and it suggests that ur inputs are wrong. Pls recheck.

Sent from ew line is so sloooow using GAGT

 

[FP_IFA]

I dont believe 500k wl + 500k ci is only $6000 per YEAR + pay for 20yrs.

Did a check on comparefirst.sg and it suggests that ur inputs are wrong. Pls recheck.

Sent from ew line is so sloooow using GAGT

You can get a whole life plan at that price if it is one with a multiplier (term). That is why I ask what happen if that multiplier expired.

A easier way to look at how flawed this is by comparing with a traditional whole life plan with no multiplier.

Example:

This is a whole life plan costing slightly above $10k. Now assuming you going to compare this way with a 20 years term that maybe cost $1k. Is it correct to argue that after 20 years, 9k you save per year should earn you $500k else the term is worse off?

No you can't compare things this way. In financial planning, you cannot just rely on numbers alone. How many people can afford $10k a year on a whole life plan? Even if you can afford, is a $2mil term better than a $500k whole life for the person during that critical period? Very often, the answer is not so straight forward and depends on individual.

 

[chopra]

You can get a whole life plan at that price if it is one with a multiplier (term). That is why I ask what happen if that multiplier expired.

A easier way to look at how flawed this is by comparing with a traditional whole life plan with no multiplier.

Example:

This is a whole life plan costing slightly above $10k. Now assuming you going to compare this way with a 20 years term that maybe cost $1k. Is it correct to argue that after 20 years, 9k you save per year should earn you $500k else the term is worse off?

No you can't compare things this way. In financial planning, you cannot just rely on numbers alone. How many people can afford $10k a year on a whole life plan? Even if you can afford, is a $2mil term better than a $500k whole life for the person during that critical period? Very often, the answer is not so straight forward and depends on individual.

No hard feelings. That's why u aren't an actuarist. It's all about numbers.

Sent from ew line is so sloooow using GAGT

 

[xdemolicx]

So there's a couple of things you need to think about to make the comparison more correct.

Firstly the investment returns. Your average stock's going to return about 7%; and your average fund in an ILP is going to return around 5% (because the fund is investing in the same stocks that you are, but they're taking about 2% in fees off the top).

Re-run your comparison with those different return numbers; and add in a bit for the mortality charges in the ILP (I don't know exactly how large they are); and then come back to us.

Hi Shiny. I wanted it to be on more equal grounds since i noticed that many policies seems to use the minimal range of 3.25% or 3.75%.. not sure if this is good. I am a fairly low risk invester. I changed the comparison to be against a WL instead .

 

[xdemolicx]

You can get a whole life plan at that price if it is one with a multiplier (term). That is why I ask what happen if that multiplier expired.

A easier way to look at how flawed this is by comparing with a traditional whole life plan with no multiplier.

Example:

This is a whole life plan costing slightly above $10k. Now assuming you going to compare this way with a 20 years term that maybe cost $1k. Is it correct to argue that after 20 years, 9k you save per year should earn you $500k else the term is worse off?

No you can't compare things this way. In financial planning, you cannot just rely on numbers alone. How many people can afford $10k a year on a whole life plan? Even if you can afford, is a $2mil term better than a $500k whole life for the person during that critical period? Very often, the answer is not so straight forward and depends on individual.

Yes indeed. After the multiplier, which is at age 76, the coverage will drop drastically from 500k to 100k for death and CI.

This is the portion that i wasnt able to really figure out because taking the multiplier effect into consideration, the BTIR way will only make sense if I continue to invest $4900 even after 30 years.. until age 75 where my WL policy payout will drop from $500000 to $100000 for both death and CI.

This is where my coverage will increase exponentially. But what about the period when i am age 65-75? Which to me is a crucial period because i am more prone to illness.

I wasnt able to view the attached image.. can i trouble you to reupload it?