1. Premiums differ from various insurance companies
As seen in the table above, a 35 year old male who wants to cover $300,000 for death, total permanent disability and major illnesses can choose from the above term insurances. The premium difference between the plans can be up to $518 per year. This means the policy owner can save up to $15,022 in premiums over the term of the insurance.
If the policy owner chooses to invest the extra savings of $518 per year into an investment that yields a return of 7%, he will accumulate a lump sum of $45,245 when he is age 65. This is equivalent to 3 holiday trips to Europe. This is the value of a good decision made when it comes to choosing insurance.
2. Life insurance is for protection, not accumulating wealth
The return on a typical life insurance policy with cash value is less than 3%. Singapore inflation rate is already at 3% – 4%. The value in your money kept in an insurance policy will erode over time. There are many other instruments in the market which can give you above 4% return on your investments. Thus, to save your money in a insurance policy which has mortality charges, policy fees and other costs, it will be an unwise plan for retirement. Life insurance is meant to protect your family in times of crisis.
3. Types of coverage
People usually think having an insurance policy means they will be covered from all calamities. They are wrong. There are many types of insurances to cover for various risks, such as death, total permanent disability, major and early illnesses, hospitalizations, accidents, etc. It makes sense to review your insurance plans and ensure that your coverage is comprehensive. A well designed insurance portfolio can help you save on premiums yet provide you with comprehensive and sufficient cover.
4. Amount of needed coverage
According to the Life Insurance Association of Singapore, you will usually need death and total permanent disability coverage of about 10 times of your annual income. For major illnesses, you will need to be covered for about 3 – 4 years of your annual income. This is because if you are seriously ill, you will need time to recover and will be unable to work for a few years. For example, if a person suffers a major stroke, he can only fully recover majority of this physical capabilities after a few years. He will be most likely be unable to work in his previous job, and may need to take a part time job at best.
5. Life insurance is the foundation of a financial plan.
We can plan for our retirement, having financial freedom, and even to become very rich. However, life may not be smooth sailing at times, and we may face unfortunate events such as accidents, major illnesses, disabilities and even premature death. Therefore, managing our life and financial risk is very important as a start to our financial planning. The reason is if we are not rich when we are starting out in life, a crisis can cause our finances to be bankrupt. Or if we develop any ailments early on in life, it may cause us to be uninsurable in future. So life insurance is indeed the foundation of any financial plan.
5 things you MUST know about life insurance
1. Premiums differ from various insurance companies
As seen in the table above, a 35 year old male who wants to cover $300,000 for death, total permanent disability and major illnesses can choose from the above term insurances. The premium difference between the plans can be up to $518 per year. This means the policy owner can save up to $15,022 in premiums over the term of the insurance.
If the policy owner chooses to invest the extra savings of $518 per year into an investment that yields a return of 7%, he will accumulate a lump sum of $45,245 when he is age 65. This is equivalent to 3 holiday trips to Europe. This is the value of a good decision made when it comes to choosing insurance.
2. Life insurance is for protection, not accumulating wealth
The return on a typical life insurance policy with cash value is less than 3%. Singapore inflation rate is already at 3% – 4%. The value in your money kept in an insurance policy will erode over time. There are many other instruments in the market which can give you above 4% return on your investments. Thus, to save your money in a insurance policy which has mortality charges, policy fees and other costs, it will be an unwise plan for retirement. Life insurance is meant to protect your family in times of crisis.
3. Types of coverage
People usually think having an insurance policy means they will be covered from all calamities. They are wrong. There are many types of insurances to cover for various risks, such as death, total permanent disability, major and early illnesses, hospitalizations, accidents, etc. It makes sense to review your insurance plans and ensure that your coverage is comprehensive. A well designed insurance portfolio can help you save on premiums yet provide you with comprehensive and sufficient cover.
4. Amount of needed coverage
According to the Life Insurance Association of Singapore, you will usually need death and total permanent disability coverage of about 10 times of your annual income. For major illnesses, you will need to be covered for about 3 – 4 years of your annual income. This is because if you are seriously ill, you will need time to recover and will be unable to work for a few years. For example, if a person suffers a major stroke, he can only fully recover majority of this physical capabilities after a few years. He will be most likely be unable to work in his previous job, and may need to take a part time job at best.
5. Life insurance is the foundation of a financial plan.
We can plan for our retirement, having financial freedom, and even to become very rich. However, life may not be smooth sailing at times, and we may face unfortunate events such as accidents, major illnesses, disabilities and even premature death. Therefore, managing our life and financial risk is very important as a start to our financial planning. The reason is if we are not rich when we are starting out in life, a crisis can cause our finances to be bankrupt. Or if we develop any ailments early on in life, it may cause us to be uninsurable in future. So life insurance is indeed the foundation of any financial plan.
Aaron Graham Tay
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