Term VS Life Insurance?

[alatus]

It seems as though there are 2 kind of life insurance, a Term life insurance and an ordinary insurance?

I'm fairly new to these insurance policies out there, but what are their differences? I'm confused about them.

I've only started working and was told that I should sign up for a life plan when I'm still young before the premium gets too expensive when I'm older.

 

[wooty100]

Ok.

I suggest you read some post here which has been discussed extensively.

General forumers advocating avoiding ILPs if it is used for investments. ETFs and index investing sometimes gives long term capital appreciation and growth. Another topic to look into for wealth creation, should leave it next time.

For starters, you can go LIA read up some guides that are approved and written for consumers.

Second, make an appointment with an agent to find out more from X company products should you indentify certain products you wish to enquire.

Thirdly, always make time for financial planning. You are part of the process and should spend equal time and effort in understanding the policies you are to commit. Alot consumers tend to "buy and forget", which is irresponsible and they expect the agents to do wonders to their financial plans. Some consumers even accused the agents of misleading or mis sold products which is not fair. So please do your own due diligence and act accordingly.

A few sample planning i can come up with your current status.

1) Buy a few term insurances covering death, disability and critical illness along with intregrated medishield upgrades.

2) Buy a small wholelife for approx 200k coverage as a base. Premium can be about 100-200 for a limited term . Cover another 300k with a term

3) ILP as protection vehicle. It's yearly renewable term feature is interesting and offers lower cost of insurance, giving you 2nd highest coverage per $ value .

 

[teejaywai]

It seems as though there are 2 kind of life insurance, a Term life insurance and an ordinary insurance?

I'm fairly new to these insurance policies out there, but what are their differences? I'm confused about them.

I've only started working and was told that I should sign up for a life plan when I'm still young before the premium gets too expensive when I'm older.

Hi,

First of all welcome to the working society.

A basic term plan basically provides financial protection against death and terminal illness for a specified duration(term). A term plan will not have any cashback/surrender value.

A life policy provides financial protection against death/terminal illness/total and permanent disability (TPD)/ Critical Illness (CI). More comprehensive life policy gives you protection against Early Critical Illness. Unlike Term Plan, Life policy has a surrender value/cashvalue if you wish not to continue the plan anymore.
Life policy covers you for life. i.e 99years. However plans nowadays give you an option of Limited Premium Payment. Meaning to say, you can choose to pay for 15/18/24 years and afterwhich, the policy will run itself and covers you for life.

The reason why Life policy gives you a value if you wish to surrender is because they invest in par-funds which are regulated by MAS. That is why they generate a returns which mostly just to beat to inflation,3-4%, non-guaranteed.

And yes, the older you get, the premiums would be much higher.
Plan early.

Hope it helps.

Cheers

 

[alatus]

Unlike Term Plan, Life policy has a surrender value/cashvalue if you wish not to continue the plan anymore.

Thanks! Can I clarify a little on this? Do you mean a Term Plan will simply be that I pay every month and I get protected against illnesses. And when I stop paying, I don't get anything back. A Life Policy will pay me a surrender value should I decide to stop paying?

 

[teejaywai]

Thanks! Can I clarify a little on this? Do you mean a Term Plan will simply be that I pay every month and I get protected against illnesses. And when I stop paying, I don't get anything back. A Life Policy will pay me a surrender value should I decide to stop paying?

Hi,

A Basic Term plan protect you against Death/Terminal Illness. U can add riders to cover you from Critical Illness etc.

Let say you buy a term for 20 years. At the 15th yr, you decide to stop paying. Thus you are not protected 15th yr onwards. And yes, you dont get anything back.

A Life policy has a cash value portion in it. Meaning to say you stop paying (surrender), you can some cash value back. Dont expect to be alot. Unless in the long term when it generate enough cash to break even your total premiums. However, it is not advisable as it covers you for life(99yrs).

Since you are young, you can buy a life policy with a limited premium payment(LPP).

Let say you purchase a Life policy LLP 20yr . You are 24 this yr, at age 44yr you paid up your life policy you do not have worry about paying anymore but you covered against unforseen circumstances.

The earlier you buy, the more time for the policy to generate greater cashback, in the event you wish to surrender. Reason being - the power of compounding interest.


Cheers

 

[alatus]

In this case, a LLP sounds like the better life policy. What are usually the drawbacks of LLP? I'm currently 28yo. Is it a little too late to buy an LLP at this age? What is the premium usually like for someone of my age? And is the premium of LLP locked to my current age?

 

[teejaywai]

In this case, a LLP sounds like the better life policy. What are usually the drawbacks of LLP? I'm currently 28yo. Is it a little too late to buy an LLP at this age? What is the premium usually like for someone of my age? And is the premium of LLP locked to my current age?

Yes, the drawbacks of the LLP is that you actually have the pay a larger sum of premiums as compared a full life policy. Not really a drawback. You will have a peace of mind after LLP. You can base on your comfortable contributions to allocation the length of payment and premiums.

At age 28, paying a 20yr LLP or 25yr LLP is ideal as you dont have to worry before age 55yrs. or Retirement ideal age. In our 20s is still not late to purchase once. unless if you are 40yr and above. A life policy is going to be very expensive.

Yes, Premium will be base on your entry age. So is locked to your age.

I will PM you the premium and coverage personally.

Cheers.

 

[alatus]

Ok.

I suggest you read some post here which has been discussed extensively.

General forumers advocating avoiding ILPs if it is used for investments. ETFs and index investing sometimes gives long term capital appreciation and growth. Another topic to look into for wealth creation, should leave it next time.

For starters, you can go LIA read up some guides that are approved and written for consumers.

Can I know what does ETF stand for? And what is LIA? Sorry, I'm new to these terms.

 

[alatus]

I have also browsed through some other threads on this forum, and have incidentally found one that discouraged people from buying life plan insurance. From the replies in the thread, it seems like life plans are usually not as what they are touted and it's a bad idea to buy life plans?

 

[teejaywai]

Can I know what does ETF stand for? And what is LIA? Sorry, I'm new to these terms.

ETF are Exchange-Traded Funds that tracks an index, commodity or a basket of assets. It gives you more diversification. In SG context, an ETF that tracks Straits Times Index(STI) gives investor exposure to SG market. Meaning to say is actually inline with STI. if STI goes up, the ETF will goes up vice versa.

Due to the fact is diversify in a basket of goods, you risk tends to decrease. However, returns may not be potentially higher as compare to invest in individual stock.

LIA is stands for Life Insurance Association. is a regulator of the insurance companies. Think about MAS, is a body that regulates banks.

 

[teejaywai]

Is a personal perspective. Some will feel that buying a term plan which is cheaper and if the insured pass away. You leave your family a sum of money.

A life policy has more to it. Its coverage is wider, covers Early Stage Critical Illness etc. For some they feel since you are paying to get protected. they like the idea of some cash values if nothing happens to them. At the end of day, the main objective of a life policy is the get coverage from unforseen circumstances, if nothing happens, take it as a savings.

There is no right or wrong answer to it, is basically a personal perspective.

I will say you need a balance of both, a Life policy to get wider coverage, a term to boost your coverage in case the insured pass away.

 

[w1rbelw1nd]

I have also browsed through some other threads on this forum, and have incidentally found one that discouraged people from buying life plan insurance. From the replies in the thread, it seems like life plans are usually not as what they are touted and it's a bad idea to buy life plans?

It really boils down to what purpose does insurance serve for the individual. Personally, I think insurance main purpose is to insure the individual and his family against any sizable financial risk.

Do we need a savings plan function of whole life for our risk management needs? I absolutely think not. The money locked inside a whole life plan is highly illiquid due to the early termination fees/ admin fees etc. We are better off buying term investing the rest (btir) because we have greater flexibility and higher returns.

The more money you allow insurance companies to handle, the more you lose through fees and commission. The critical thing is to make use of insurance companies for what they do best ( ie insurance) and diy other financial needs yourself.

 

[dowzkeh]

I have also browsed through some other threads on this forum, and have incidentally found one that discouraged people from buying life plan insurance. From the replies in the thread, it seems like life plans are usually not as what they are touted and it's a bad idea to buy life plans?

I think it is more efficient use of capital if you buy term for the maximum coverage of protection and use the difference in premium to invest. You will get much better returns than buying term.

[you need to diligently invest the difference though]

 

[alatus]

I think it is more efficient use of capital if you buy term for the maximum coverage of protection and use the difference in premium to invest. You will get much better returns than buying term.

[you need to diligently invest the difference though]

By investing on my own, do you mean like trading, in property, doing a business, etc?

 

[matrix05]

CPF already buy term for u. And you are working, yr co also got insurance for u. There is really no need to buy so many policies, they cost money. Forget abt life.

 

[Wojahnni]

By investing on my own, do you mean like trading, in property, doing a business, etc?

If you have the money, you can buy directly into property as a form of investment or buy REITS if you are unable to buy directly.

Doing a business is also a form on investment but depending on your business idea, you will need a certain amount of capital and there will be risks involved.

By trading, I assume you are talking about stocks and shares. You can either invest yourself by spending time on it or you can pay others like investing into a fund to help you manage it. It depends on what are you comfortable with.

 

[dowzkeh]

By investing on my own, do you mean like trading, in property, doing a business, etc?

Like what the other bros here say, you can do it in any way as long as your use of money is efficient, and generate better returns.

Personally, i prefer to use the money on exchange traded funds...
SSgA: SPDR Straits Times Index ETF

There are many advantages, for example you can read
What the Heck is an Index Fund, and Why Would You Want One? | MoneySmart.sg

Because Life Insurance assumes you have a long investment horizon.... ETFs are good vehicles

and you can even do it in a brainless way - much like paying your insurance premiums.... monthly deduction (or otherwise).
http://blog.moneysmart.sg/invest/posb-invest-saver-ocbc-blue-chip-investment-plan-poems-share-builders-plan-which-regular-savings-plan-to-use/

You pay the insurance company, they take the money and invest in 'inferior'products and charging you commissions etc.
Personally from the perspective that ETFs are better, cheaper and more efficient, i feel it's better to cut down on unnecessary cost and invest in a 'superior' product by taking the money and invest in ETFs.

It's good that you are asking - do read up more, make an informed decision.

 

[blurpandasg2014]

I'm not too sure why some of you here have the "mutually exclusive" mindset.

Throughout my career in the financial industry, I have met people who think BTITR strategy is the ONLY way to do it. On the other hand, I've some clients who think buying term insurance is the most stupid decision as you get nothing back at the end of the term.

Instead of taking sides and condemning the other, why not take a step back and list down the pros and cons of each strategy? Even the much hated ILPs has its own place in the market.

My personal approach is to be strategy neutral and see which plans can fit in my overall objective. For example, it could be using WL as a base, term as a supplement and ILP for some tax planning. Or simply "buy term save the rest" for the not so investment savvy.

For those with medical conditions or special needs, the planning would be even more intensive..

Hope this helps.

I agree with what ntucagent said
For me, i use WL as a base, term as a supplement. There are no hard and fast rules abt this and agents shld always bear in mind that end of the day, it is your clients decision to do whatever they wan with their money.

Recently, i met an agent who was pro-term, anti-life plan and very confident that he could provide me with better alternatives (must be iLP) than me investing through stock market and dollardex. I shall meet him this week and see what he has to say.

 

[DevilCurseYou]

I'm not too sure why some of you here have the "mutually exclusive" mindset.

Throughout my career in the financial industry, I have met people who think BTITR strategy is the ONLY way to do it. On the other hand, I've some clients who think buying term insurance is the most stupid decision as you get nothing back at the end of the term.

Instead of taking sides and condemning the other, why not take a step back and list down the pros and cons of each strategy? Even the much hated ILPs has its own place in the market.

My personal approach is to be strategy neutral and see which plans can fit in my overall objective. For example, it could be using WL as a base, term as a supplement and ILP for some tax planning. Or simply "buy term save the rest" for the not so investment savvy.

For those with medical conditions or special needs, the planning would be even more intensive..

Hope this helps.

To be strategy neutral, it means the pros and cons also have to weighted carefully. Insurance and investment are very simple. You pay money, and you get money. It is a trade of money for money. Hence, weighing the options are very easy, you simply take the option which provides the higher value.

Buy Term Invest The Rest(BTITR) generally argues on numerical superiority, in that the option provides better value. On the other hand, The pro-wholelife seems to argue on non-numerical factor, which ntucagent quoted an argument based on sunk cost. Sunk cost is a known logical fallacy.

A lot of things are bought on logical fallacies, and sellers are glad to sell too. The choice is yours.

 

[teejaywai]

I agree with what ntucagent said
For me, i use WL as a base, term as a supplement. There are no hard and fast rules abt this and agents shld always bear in mind that end of the day, it is your clients decision to do whatever they wan with their money.

Recently, i met an agent who was pro-term, anti-life plan and very confident that he could provide me with better alternatives (must be iLP) than me investing through stock market and dollardex. I shall meet him this week and see what he has to say.

This is way there is so many different insurance products to suit different needs of people. There isnt a one policy when caters everyone needs.

At the end of the day, the client that pays the policies must feel comfortable and beneficial to his/her needs(be it term/life/ilp).

Some dont even trust insurance, that they dont even need one. But i am sure at different milestones in life, they surely would come to realise that some minmium insurance is needed. Not for them, but at least for their family and kids.

If you need a 2nd opinion , i am gladly to share.

Cheers.