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Real life lessons in matters regarding insurance.

Monday, August 31, 2015

This might sound familiar to some of us but I am more interested in sharing this with readers who have yet to buy insurance products or who are thinking of buying insurance products soon. Be careful.

Hi AK,

Thank you so much for reading my email. More thank yous for the advice. 

I have a cousin who sold a whole life insurance to my dad (when he was 40+) for sum assured of $60,000 with CI rider. The monthly premium is $208 and my dad will have to pay the premiums until he turns 88 yrs old. 

Back then, I was only 20 and still studying. When my parents mentioned to this cousin (already resigned from AIA years ago), how they are going to pay as they most likely won't be working in their 70s and 80s, the cousin replied, "Your children can help to pay." Unknowingly or rather without consent, my sisters and I were in debt. Before purchasing the AIA whole life insurance, the cousin knew my dad had another whole life insurance with NTUC for sum assured of $25,000. The thing that pains me was that my cousin was starting out as an insurance agent, sales target became the motive.


Don't ask why. You just buy.


If I had the knowledge then, I would have questioned my cousin for not recommending a term insurance instead. For example, term insurance for sum assured of $50,000 or $100,000 until he is 70 or 75. Then the NTUC whole life ($25,000) will cover until 99 years of age. Of course, her commission will not be as much. Then again, what is the primary role of a financial planner?

Now my dad is 61 yrs old, I'm trying to convince my dad to cancel this AIA whole life insurance (yearly expense of $2500) and purchase a term insurance of $50,000 for the coverage period of 10 or 15 years.

Another case was my husband's brother who became a Manulife insurance agent and sold him an ILP. He has since resigned. In order to meet his sales target, he paid the premiums on behalf on my husband who was still in university that time. Now, when we reviewed this ILP policy, a total of $8000 premiums paid but the surrender value was only $5000. I told him that out of nowhere, you have lost $3000 within 5 years. Could have been better to put it in a bank let inflation erode or go for a holiday, which has at least some form of "payback". Although we felt very heart pain, at least it is a good lesson for both of us. If don't know, don't any how buy =p

Sorry for the ranting. These two cases are the best lessons learnt. 

I wish to have a good week and great health to write more posts. :) hehe 

A


Taken on a trip to Hong Kong:
The giant Buddha in Ngong Ping.


Hi A,

I am quite happy to read your emails which put a smile on my face. :)

I am sorry but not surprised to hear of your dad and husbands' experience. My parents also had similar experience and the policies were all sold to them by relatives and friends. -.-"

With regards to your dad's case, unless he still has dependents, he doesn't even have to buy a term life policy till age 70 or 75. I don't know if you read my blog post on how I advised my dad to terminate his whole life policy because he no longer has dependents. We, his children, are all grown up and making our own money.

So, your dad could consider terminating his whole life policies and his cash flow will improve. Of course, he will probably be receiving a lump sum payment as well which he could use for a holiday or something else he has been thinking of doing. He should enjoy his golden years and not worry about paying for an insurance policy that has outlived its purpose. :)

Sharing our personal experience is always the best way to spread the message on what is prudent when it comes to life insurance. I have shared stories from readers as well as my family over the years. I would probably be sharing yours too. ;)

I am glad that I am able to do good with my blog and emails like yours encourage me to continue blogging. :)

Best wishes,
AK


The truth is nobody cares more about our money than we do.

Related posts:
1. Should I terminate an expensive ILP from a friend?
2. A true story about life insurance and grapes.
3. Consider terminating whole life insurance policies.
4. AK responds to Sumiko Tan's expensive lesson.
5. MediShield Life, free medical insurance and hospitalisation?

15 comments:

SMK said...

firstly each person's circumstances are different. i do not prescribe to understand your reader's rationality.

personally, if it were to happen to me, i would have gladly taken over the payment.
my thinking would have been that my dad's funeral is settled. I don't have to worry about setting aside money towards this end. secondly, he had been paying for it for so many years so most of the costs are already picked up. Any further additional input would have been accumulating value greater than the overall outlay. (i stress i do not like people buying a policy to profit from parents' demise. this is covered in a previous post in ak71.) interestingly, the returns from THAT era would not look out of place in a bond portfolio. so coupled with the insurance payout, it would not be too bad.

However. But. If the dad has not been actively growing the remainder of his savings, it would not be a good retirement tool.

I am guessing the reader is somewhat still in a "I'm too young and have not explored my options in life and not prepared to think of things like retirement, family allowance and final expenses and unforeseen expenses" stage which explains why he/she is alarmed to find that suddenly he/she has to put out more. the emotional response is understandable.

I personally had to buy a whole life insurance policy for my father in HIS 60s.

AK71 said...

Hi SMK,

Yup, I commented in an earlier blog post on why I decided against paying for my dad's whole life policy and had him terminate it instead. It was in reply to something a reader said in FB. For readers who don't know or don't remember, I reproduce it here:

JC:
Since the Dad of 70 has been paying for his policy for such a long time, it would be a waste to let the policy lapse. We never knows when a serious illness can strike anyone. Ever body hv to die one day, why give up the insurance, money is never enough! If Dad cann't afford to service the payment, I would take over to pay n in the end the payout would be more than the premium paid.

AK:
My dad had the policy for 24 years, maybe 25. He bought it quite late in life. It is really quite an expensive policy, therefore, for the amount of coverage he gets.

As for serious illness striking us, I think that is where Critical Illness coverage comes in. I always say we need Critical Illness coverage. My dad's whole life policy doesn't do anything in this area.

As for taking over paying of the premium, I think that my dad would not want any of us to do that. It would hurt his pride and I wouldn't want to do that, for sure.

Pay the yearly premium on his behalf from now on and when he goes, I take the money? Nah.

At the end of the day, my dad took back the money he paid over the last 24 or 25 years and more.

At least he gets to see his money when he is alive now. It is his money. I wouldn't want to take that away from him.
September 6, 2014 at 6:51 PM


Now, definitely, all of us have different circumstances but I am not sure that a funeral would cost $60,000 or more. We had to organise a relative's funeral earlier this year as he died childless and a widower. Including the wake, it didn't cost us more than $9,000.

It is up to the reader's father to decide but what he has is, in my opinion, a very expensive whole life policy because he took it up in his 40s. Very similar to my dad's case.

Is life insurance a need or a want for someone in his golden years? Not only does it depend on the person's circumstances, it depends on how we define "needs" and "wants", possibly. ;)

SAFE said...

Hi AK,

Many thanks for your valuable blog.

I am 53 years old. I bought an ILP form Great Eastern 10 year ago. the sum assured is 200k, and CI benefit is 80K. the monthly premium is $420. the total premium paid so far is 50K. The cash value of this policy is fully from the investment. The market value of the invested fund is $20K.

Learned from your blog, i am thinking to terminate this policy. If so, i can just get back 40% ( 20/50 ) of the premium I paid. My question is:

1. I still have dependents now, do I need to buy a new term insurance after terminate my current ILP?
2. How can I find a replacement for my CI benefit?

SMK said...

his dad is much younger than my father. funeral expenses may not cost $60K, in fact normally, the younger the cheaper. (different amongst races too) but the follow up will not be cheap for certain cultures and certain family backgrounds. (often a multiple of the funeral itself)

of course, it depends.

in my case, it is a NEED of mine for him to have that insurance when i bought it.

AK71 said...

Hi SAFE,

I am not allowed to give you any advice but I could ask you to go to the full web version of my blog and you will see a banner advertisement at the top of my blog by DIYInsurance. It is a good resource that allows you to compare available insurance products.

As you have dependents for the next 10 years, you will at least need a term life policy for the same duration. You should also have CI coverage and this one for longer than 10 years is probably a good idea. CI benefit is for in case we do not die from having one of the dread illnesses.

Using DIYInsurance, I see that for someone who is 50, a 15 year $200K term life policy with CI coverage will cost $2,700 a year or so (AXA Term Protector + CI). So, effectively, it is $200K life insurance and a $200K CI coverage for $225 a month. You will be saving about $200 a month.

If you do not want to DIY and would like to have a personal insurance adviser, give me your email address and I will get someone to contact you. Having professional advice is a good idea. I am just a blogger. ;)

AK71 said...

Hi SAFE,

OK, I got your comment with your email address and have forwarded it. Not publishing your comment since I am not sure you want others to have your contact details. You will hear from someone soon. :)

SAFE said...

Hi AK,

I would like to share my case with others if you can hide my contact. Many Thanks.

RayNg said...

Since he had paid ~20 years of premium, he should has some cash value accumulated.

Before terminating the policy, he may want to look at the yield, going forward. This can be done by looking at the cash value of the policy now, the premium payable in the future (5 year), and the cash value at the end of the period.

If the he is likely to earn a higher yield from other investments, it is better to terminate the policy now and invest the savings in other higher yielding investments.

Before terminating the policy, the he should buy a term insurance policy to provide the required amount of coverage to replace the coverage under the existing policy.

AK71 said...

Hi SAFE,

Your main comment is staying. Not removing it. Don't worry. I hope it would encourage some genuine discussion without any attempt by any insurance agent or agency to promote some services here. ;)

AK71 said...

Hi RayNg,

We can always rely on you for some objective input in such matters. Much appreciated. :)

I especially like the last paragraph. Yes, before we terminate any insurance policy which is providing coverage which we still need, we should check if we are allowed to buy a less costly one in replacement. This is especially the case if our health condition has changed.

Coincidentally, I replied to a comment by another reader recently on this too: here.

SMK said...

Safe, I recommend you also look at comparefirst.sg which is enforced upon insurance companies by legal legislation for comparison as well. You can also enquire on direct purchase insurance options which is required by law.

http://www.moneysense.gov.sg/understanding-financial-products/insurance/types-of-insurance/life-insurance/types-of-life-insurance/direct-purchase-insurance.aspx

You may or may not get lower costs insurance through those other than through portals still receiving some form of commission from insurance companies.

if costs are a factor, you can consider SAF group term life. Though you should calculate the mortality costs of your own ilp vs term life and see for yourself instead.

AK71 said...

Please note that as long as I get the impression that you are offering your services here in the comments section, whether it be for monetary gain or not (and there is no way for me to be sure that it is not), your comment will not be published.

Unfortunately, I am not able to edit such comments to only retain the useful bits for the purpose of discussion here.

This is something I have mentioned before in an earlier blog post:
Why was my comment not published?

AK71 said...

Hi SAFE,

Here are a couple of points which someone would like me to share with you:

1. Please take note that new CI plans might have a 90 days waiting period before taking effect.

2. Please compare the new and old CI plans to see if they do the same thing. It could be that the old CI plans are less demanding if you had to make a claim.

To get a similar level of coverage, I feel that potential savings of about $200 a month or $2,400 a year is substantial. So, unless there is a very persuasive reason (such as health having deteriorated in the last 10 years) to keep the status quo, a change should be seriously considered.

Celly said...

hello, this is my first time commenting after following ASSI for some time as this is a subject quite close to my heart. For SAFE: Please do check if your existing health condition permits you to purchase another plan. I have an ILP too, which I've long wanted to give up, (it's a hefty $250 a month vs. $15 for a term plan for equivalent death, CI coverage -_- ) but because of some minor changes to my health since then, I'm hesitant in doing so as I'm not sure if I'll kena any exclusions in the new plans. You wouldn't want to be in a situation where you've given up your plan and realised that you can't get yourself covered!

AK71 said...

A reader says:
"... my journey has been slow and riddled with obstacles, and have made quite a few bad financial decisions along the way. 4+ years ago, I was very doubtful of insurance but was open to the idea of investment (though I had little knowledge), hence I was sold an ILP (as you would have guessed). After these years and after quite a bit of research, I am now convinced that ILP is not for me. It offers lacklustre returns, while being overly expensive for coverage. I have just contacted my agent today to terminate it..."

AK says:
"Don't be doubtful that insurance is important.
Don't be doubtful that investing is important.
Be doubtful only when the two are mixed together."

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