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Purchasing life insurance

I recently re-balanced the family’s insurance schemes. I remember just when i was just starting out, my cousin once told me to buy only Term + Critical illness insurance. I didn’t listen and bought an investment linked plan from one of my friends (he played the friend card, which is annoying). They guarantee you 3% returns or something similar, along with coverage.

I bought the Manulink Flexi plan on Nov 1 2008, and had it for 89 months (7years, 5months). Monthly premium was $206.59. Total Premium paid was $18386.51. I remember getting back only around 11k when i surrendered this policy. Basically I paid $7386.51 in total for term + critical insurance coverage for the 7+ years, about 1k per year. Looking back, i did not require such coverage as i didn’t have any dependents.

Lets see the figures comparing what i would’ve otherwise gotten, had i invested in a stable dividend stock/reit, since the premise is that this policy is not necessary.

I’m looking at a total portfolio value of $20k

Even keeping it in cash gives me $17k, versus $11k after investing in this insurance. I could take that $1k/yr and do some exercise regime, and enjoy the sun sand and sea while i’m at it.

Exercise and healthy lifestyle is the best insurance. Unless its a policy where you can start paying early, and stop paying after a certain number of years, and the policy continues to cover you, its not worth it.

They call this type of policy a Life plan. I pay a fixed set of premiums for 20 years, and i’m covered for Life + Critical illness for my entire life. Mrs EOR had better foresight in this, as she bought this plan about 8 years ago (she bought enough to cover herself only, which is the right decision).

Holistically, this is better than just a simple term + critical plan. Usually the simple term + critical illness plans cease coverage after age 65. Living in Singapore where euthanasia is not practiced, i do not want to burden my future generations with heavy medical bills. This life plan insurance should take care of that.

I’ve also bought a similar life coverage for my daughter. The policy will be fully paid up when she reaches age 20, with $300k coverage in each of the categories life/critical illness/disability, so she does NOT need to buy insurance until she has dependants. You will probably only need a Term insurance policy to cover your dependents, and perhaps some additional critical illness coverage as medical costs may be higher in 2047.

I strongly believe that when it comes to financial planning, you need to have a clear mind when it comes to evaluating financial instruments:

1. Know exactly what you’re buying and how it works. Term is for temporary coverage, Whole life is if you have spare capital to front load your insurance premiums.

2. Why are you buying it

3. What role it plays in the bigger picture in your financial portfolio and life

4. Take into account your purchasing power

5. What are your alternatives with the funds

My recommend allocation for insurance is 4-5% of your annual income, if you do not have any coverage.

In summary, buying insurance coverage only makes sense when one has dependants. Just my two cents…

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