Buying life insurance

Today, a friend messaged me this:

"Hi, want to check with you. Any good life insurance product in the market to recommend?"

This unsurprisingly-common question is actually rather impossible to answer. Firstly, life insurance covers a whole span of products, including whole life, endowments, term, and so on. Each product caters to different needs, and a proper needs analysis would not be possible without some of the person's key information like age, income, number of dependents, financial circumstances, etc. 

Secondly, even if the question is zoomed into a particular product category, say, whole life, there is still no simple answer. This is because premiums are not everything. A product may cost the cheapest, but if it also offers the least benefits, is it necessarily the best value for money? 

Thirdly, there usually isn't a product that is uniformly cheaper than all the other insurers' products across different ages, gender, smoking status, and sum assureds. Insurer A may have the cheapest term plan for younger males and for larger sum assureds, but for older females and smaller sum assureds, Insurer B may be cheaper. This happens because each insurer has its own mortality curves, morbidity curves, surrender rates, claims experience, and profit margins, which they use to price their products. 

Life insurance is much more different compared to other financial products because each product costs differently for each individual (varying ages, gender, smoker status, sum assureds) and also caters to specific needs. Thus, it is always advisable to do a proper fact find with an insurance agent or financial adviser before purchasing life insurance.

Life insurance coverage

Instead of talking about my unit trust portfolio, this time I shall blog about my life insurance coverage.

My limited premium whole life has a coverage of $60,000 for death and TPD, and $50,000 for critical illness. I bought it in 2007 when I was 26 years old, and the monthly premiums are $148.15 for 20 years. I also added a rider that covers me for disability income, with a payout of $2,250 every month if I am not able to work. Premiums are quite affordable, at $17 a month, but this is payable until I am age 60.

I have a regular premium ILP with a monthly contribution of $140, and it covers me for death, TPD and critical illness with a sum assured of $60,000. The policy allows for triple claims - i.e. if the policyholder is down with critical illness, he can still claim for TPD thereafter, and finally death. Usually, life insurance policies lapse once you make any claim. The underlying fund of this ILP is a balanced fund.

My term plan provides me with the bulk of the insurance coverage I need - $300,000 for death, TPD and critical illness. It was purchased in 2007 for $80.24 a month, and will expire in 2037. Term plans are the cheapest way to boost one's coverage, but many people still shun them as they don't have any cash value.

Another term plan has a sum assured of only $100,000 for critical illness, but it is an early payout coverage. Normal critical illness policies only pay when the disease is at a rather advanced stage, but this policy splits the sum assured into several payouts, depending on the severity of the illness. This allows policyholders to use the money earlier to seek treatment, in the hope of preventing the disease from advancing to a further stage. For this amount of coverage, this policy is quite expensive - $68 a month, bought in 2009 - but I still think it is worth it. 

I have two small endowments which I timed to mature on various years nearer to my retirement. The first one matures when I am 55 with a projected maturity amount of around $33,000 with a premium amount of $60.75 per month. The second one would mature when I reach age 58 for around $36,000 with a monthly premium of $53.45.

Finally, I have two hybrid plans - a combination of a whole life and an endowment. The first one covers $50,000 death only, and payable for 5 years, at $181.69 a month. I bought it in 2006, so it will be fully paid up by end of this year. At age 62, it will pay a guaranteed amount of $25,000 (this is like the endowment portion). After that, the death coverage will drop to $25,000 and it will function like a normal whole life policy.

The second one covers for $50,000 death as well, but this is payable until I am 55, at $81.82 monthly. This policy pays the guaranteed amount of $25,000 at age 55 instead of 62, and after that it will behave similar to the first plan.

In summary, this is my current life insurance coverage:

Death = $570,000

TPD = $420,000

Critical illness = $510,000

Disability income = $2,250 per month

Total monthly premiums = $836.05 ($654.36 at end of this year after one hybrid plan has been paid up)