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Mr Agent Whole Life Investment Linked Policy ILP Or Term Insurance
For the benefits of those who don’t know what each of those covers, I will give a little introduction below If you know what they are, just skip all the way down to after the line of asterisks All the amount is in SGD dollars . .(You will see I use a lot of terms like “usually” because different insurer has different standards So I mainly refer to most insurers in Singapore ) . .LIFE INSURANCE . .* As the name states, it covers your life As long as you are not “alife” (alive pun intended), you get a payout Well depending on how much you pay for your premium, your payout goes from like $10000 to $10000000 depending on the company itself . .* Life insurance usually also covers total and permanent disability (TPD) before the age of 65 Only when you are totally disabled such that you cannot work anymore, you will get the payout . .* Life insurance has cash value This means that you can surrender or “sell” your policy for cash You will make a loss if you surrender for usually the first 10 years But thereafter, selling it will reap you profits (between the amount you have paid so far and the amount you are getting back) Life insurance is like an antique, the longer you hold, the more valuable it becomes . .* Pros: You pay the same premium throughout the policy period So no matter how ill or old you become, you still pay the same price throughout And of course, it has cash value Do note that not all returns are guaranteed! . .* Cons: Well many people think its too expensive & the returns are little compared to a proper investment But personally I feel this is generalisation Its not fair to give such a judgement I’ll explain why later . .TERM INSURANCE . .* Like life insurance, it covers your life and usually total and permanent disability However, term insurance only covers for a period of time only It can be 5 or 10 or 15 years etc . .* 2 terms come into play here - Renewable and Convertible (R&C) Most term insurance should come with this benefit However for your benefit, please ask your agent if your policy does Renewable means you can renew your term insurance at any time with no questions asked This means that no matter how old or ill you become, insurer has to renew your term insurance for you Convertible means that you can convert your term insurance to a life policy at any time with again, no questions asked . .* Well, term insurance has no cash value . .* Pros: Well its cheap! In fact, its very cheap compared to a life insurance . .* Cons: No cash value Also, the premium will increase based on age band So no matter you buy term insurance at what age, throughout the years you are expected to pay the premium based on your current age For example: You buy term insurance for $100,000 coverage at age 20 for $300 a year At age 50, you maybe paying $1000 a year for the same coverage Its no different if you start buying at age 50 . .INVESTMENT LINK POLICY . .* This can be a little complicated But I’ll try to make it as simple as possible It combines insurance with investment ILP is different from the rest such that you can choose how much you want to pay for your premium (usually minimum $100 a month) Based on the amount, you decide how much coverage you want to get Part of the premium will go to pay for your mortality charges, the rest will be invested in some investment funds you get to choose Let me illustrate an example: . .* You decide to pay $100 a month with coverage of $100000 for death and TPD Say your mortality charge for $100000 at your current age (like term insurance, it will go up when you get older) is around $10 So $100 - $10 (mortality charges - $10 (all the admin, sales and other miscellaneous charges, yes unfortunately it exists) = $80 The rest of your $80 will then be invested into investment funds There are usually a whole list of funds from you to choose from Each fund is distinctive with different risk profile Some funds are more volatile which means anytime prices can fluctuate or escalate TREMENDOUSLY This means there is a possibility of losing more than your capital or even double your capital Well of course there are some which are relatively stable where in spite of any economic situation, fund prices will always stay or increase a little Of course you can have a mix of both But well it all depends on you and your risk appetite! . .* Pros: Its flexible! You decide the amount of premium for ILP Same amount of premium, you can decide on the amount of coverage Of course, the higher the coverage, the lower your returns . .* Cons: Well the total returns of ILP ARE NON GUARANTEED Although if the projected return rates are based on 5% and 9% every year whereas life insurance is 3 25% and 5 25% every year By only seeing numbers you would think ILP may give higher returns for even cheaper premium and higher coverage But let me stress this again, those are just projected rates of return They are non guaranteed .
Source: www.rsstnx.com