Insurance & Costs of having and raising a child

[Musicwhiz]

Ok, just met my financial planner and had a detailed 3-hour+ discussion with her. Basically, I am planning the following after reading and re-reading this thread.

1) Surrendering 2 of my whole life policies (out of 3) and replacing them with 1 reducing term policy (till age 65) with almost double the coverage. The other is a term policy with a flat rate of $100,000 coverage for Critical Illness.

2) Retaining a whole life policy which covers death, TPD and CI for about $60,000 but is payable till age 99. Question: Should I also surrender this policy and convert it to a higher term coverage for CI instead?

3) Terminating a 10-year renewable term policy which covers me for about $280,000 as premiums will rise a lot for every 10-year age bracket. I have replaced this with the prevoiusly mentioned reducing term policy till age 65 (when I should have enough retirement savings and my daughter should have graduated and started work).

4) Retaining an endowment policy with NTUC Income purchased back in 1997. So far the projected returns for this 30-year policy are 4.14% per annum, and the policy will mature when my daughter is about 18, so this can form part of her education expenses. The current surrender value already exceeds the total amount put in so far, so there is a "paper profit" on this policy.

5) Purchased a disability income insurance policy which will pay out S$3,000 per month till age 65. If activated, no premiums will be required and if I manage to resume working again, the policy will still be active. There is also a clause for a 3% escalating benefit as a protection against inflation. Waiting period is 3 months from the time of disability to payout.

Comments are welcome, and my personal view is that I should also surrender No. 2. Haha.

As for my child's whole life policy, I compare the two views provided below, one from d.o.g. and the other from my financial planner (who is of course non-objective):-

d.o.g.'s view , Do NOT buy whole life policy on a child. Instead, purchase a term policy to cover death, TPD and CI till she is of income-generating age, then she can purchase her own term coverage and disability income insurance. In other words, I take this to mean that purchase an 18-year term policy to cover death, TPD and CI, then let her switch when she is 18 when the policy expires.

Financial Planner's view , My daughter's current policy is a whole life one, and covers death, TPD and CI for S$250,000. It is payable for 20 years after which no more premiums are required; and will cover her FOR LIFE. Her logic is that the CI coverage is very high for a child so young, and at age 20 she cannot buy a cheap term policy with such a high CI coverage (which is true since I asked her to check this for myself , a term policy covering $200,000 CI is fairly expensive). Also, as the policy covers her till death (even her natural death), it is an asset which can be passed on to her dependents and the next generation. So assuming she dies at age 80, there will be 80 years of compounding which can be very significant.

So now the question is open to the floor - are there any comments on both views, and did I miss out anything? While d.o.g.'s logic is impeccable in that you save quite a sum buying term when a child is young, then letting her buy her own term policy and disability income when is of age, the fact is that there is no compounding and no asset at the end of her life to pass down should she not succumb to death, TPD or CI at all.

Thanks in advance for all your views!

[Bibi]

I think you should terminate (2). CI my personal view is 200k is good enough. Such amount is meant for in case one prefer overseas treatment, or trying out experimental drugs which health insurance wont cover (?). If one have no desire of doing the above, then a small CI amount (e.g 50k ?) is sufficient to cover for deductibles/co-insurance portion of the health insurance? What happen if one contracted CI not in the list of 30 CI coverage? So does it make sense to buy too much for CI cover?

Wow, 250k whole life limited pay cover. May i ask how much is the annual premium payable for 20 years? Do take note there is a difference between child CI and adult CI. Child is more prone to leukemia compared to adult. Compounding effect is great but i thought you can do the investment on her behalf and when she grow older, teach her how to invest. The saying "teach a person how to fish and ...."

[yeokiwi]

Financial Planner's view , My daughter's current policy is a whole life one, and covers death, TPD and CI for S$250,000. It is payable for 20 years after which no more premiums are required; and will cover her FOR LIFE. Her logic is that the CI coverage is very high for a child so young, and at age 20 she cannot buy a cheap term policy with such a high CI coverage (which is true since I asked her to check this for myself , a term policy covering $200,000 CI is fairly expensive). Also, as the policy covers her till death (even her natural death), it is an asset which can be passed on to her dependents and the next generation. So assuming she dies at age 80, there will be 80 years of compounding which can be very significant.

Is it ok to reveal the premium? A simple technical analysis will reveal whether BTITR is better. I suspect that if you do BTITR, your child will have more than 250k cash waiting for her at the end of the 20 years.

For SAF term insurance, the annual premium for dependent at 150k is only $180.
For addon critical illness of 100k, the annual premium is $120.
So, for $300 per year, you get about the same kind of coverage as your child's policy.

[belgarathc]

d.o.g,
Thanks for your analysis.

I noticed that there is a clause in the disability income insurance which says that the insurance would be terminated when we are out of job. While it make sense, what happens if you are actively looking for your next job and landed one say within 3 months. Shouldn't it make more sense to have the clause states that one cannot be out of job for more than 3 months or something to that effect.

Musicwhiz,

For your disability income policy, what happens when you are out of work?

[Musicwhiz]

Hi Bibi and yeokiwi,

Thanks for the replies.

The current annual premium for my daughter for $250,000 coverage for death, TPD and CI is about $2,100 per annum, payable for 20 years still she hits 21. After that, the policy is FOC and the amount will compound all the way till her death (natural or not). My financial planner has confirmed that buying a TERM policy for 20 years costs about $540 per annum with coverage of $200,000 death, TPD and CI. But when she takes up TERM insurance when she hits 21 with the same coverage, premiums will be $1,620 per annum for her and will be for life (assuming she covers for life). Also, the claim amount will be a flat amount of $200,000 without bonuses should I choose TERM for her when she is 0-21 years, and when she chooses TERM after 21 years.

My CI coverage actually isn't much if I do not retain (2), and amounts to just $100,000 if I choose the new TERM policy, which is why I was advised to retain (2) to add another $60,000 or so of CI coverage to make it about $160,000. Of course, I could always top up the term to cover me for additional $60,000 of course, but am unsure how much more this wil cost.

Not sure if I qualify for SAD Group Insurance though - must I be an active NS Man?

As for disability income insurance, will check with my planner whether it is still active when I am out of work or between jobs, thanks!

P.S. - What is BTITR??

[kazukirai]

The current annual premium for my daughter for $250,000 coverage for death, TPD and CI is about $2,100 per annum, payable for 20 years still she hits 21. After that, the policy is FOC and the amount will compound all the way till her death (natural or not). My financial planner has confirmed that buying a TERM policy for 20 years costs about $540 per annum with coverage of $200,000 death, TPD and CI. But when she takes up TERM insurance when she hits 21 with the same coverage, premiums will be $1,620 per annum for her and will be for life (assuming she covers for life). Also, the claim amount will be a flat amount of $200,000 without bonuses should I choose TERM for her when she is 0-21 years, and when she chooses TERM after 21 years.

Hi MW and others,

A little bit off the discussion but still related to your choices between plans that you chose for your daughter.

One of the points that I struggled with when deciding on a plan was the Inflation Factor. After all, whatever plan we buy now promises us premiums of a fixed $X amount.

So in your daughter's case (I surmise that she's quite young now because you're only in your mid-30s), after another 10-15 years of inflation, maybe that sum of $1,620 p.a. won't be much as would the coverage of $200,000 in the event you have to meet exigencies with it.

Wouldn't it be more conservative to buy a shorter term so that there's flexibility in expanding/reducing the coverage amount depending on the monetary scenario in the slightly more foreseeable future rather than buy a coverage that covers all the way till some 15-20 years later when monetary conditions may be different?

P.S. - What is BTITR??

Buy Term, Invest The Rest.
No?

[yeokiwi]

I suppose the policy can only be redeemed upon death, TPD or CI.(ie, cannot be redeemed anytime after 20 years when insured is healthy)
Your premium is $2100 and assuming that you pay $540(from your agent) for your child term and CI insurance, $1560 will be left for investment.
Assuming an annual return of 5% with $1560 invested annually, the total sum compounded will be around $51400 after 20 years.
After 20 years, the premium has to paid out of the $51400.
5% return on $51400 is $2570. $2570 is more than enough to pay for the the $1620 per annum coverage with some money left for further compounding.

5% return is a rather conservative figure and at the same time, $540 is rather high for term coverage.
At the same time, if your child at 20 years old only wants to insure till 60 years old, the $1620 figure can be reduced dramatically.

SAF insurance can be bought by active and non active NSmen.
As for BTITR, it is Buy Term and Invest The Rest .

Hope there's nothing wrong with my analysis

[mrEngineer]

thanks everyone for sharing. d.o.g has ranked systematically the priority of insurance plans and I am much clearer minded now.

After reviewing my policies, I have the SAF aviva group term life insurance coverage of 200k. I intend to purchase the critical illness SAF rider coverage for 200k as well as I do not have a CI coverage. I will look to expand the coverage when I start my family and purchase the dependent rider as well. Since the SAF disability insurance isn't so attractive (6 months waiting time), I am approaching some agents for more options.

My question is for the SAF aviva group policy, if one day you decided to relinquish your Singaporean citizenship, does the policy still applies effectively as you may not be a NSman anymore? I forsee a possiblity of overseas posting in my career (perhaps I can consider having a dual citizenship).

MW, check out this website for the SAF group term policy. I think it is one of the cheapest around and it is a flat fee until you are age 65.
http://www.aviva.com.sg/life-and-health/...nsmen.html

[yeokiwi]

When I saw the following clause in SAF disability insurance, I am turned off immediately.

The annual sum assured is based on 50% of the monthly salary multiplied by 12 times up to a max of $100000.

Max of $100k???

Where got enough?

Assuming a 30 years old adult who wants $3000 upon disability till 65 years old, the potential sum of payout can be as high as
$3000 x 12 x 35 = $1.26 million!

[d.o.g.]

The annual sum assured is based on 50% of the monthly salary multiplied by 12 times up to a max of $100000.

Max of $100k???

Where got enough?

My reading of it is that the ANNUAL payout is limited to $100k. Best to check with the agent/broker. If the TOTAL payout is limited to $100k then of course the policy is a waste of money.