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Life insurance a heavy financial burden. What to do?

Wednesday, December 20, 2017

Reader says...
I would like to seek your self talk on whether a person should continue paying premiums for his whole life insurance policy.

Person A initiated a whole life policy with the premium payment duration for 25 years.

After 4 years, the surrender value is now around 20% of the total premium payment till date.

As the monthly premium is occupying a huge part of his monthly cash flow, he is considering to replace the whole life insurance with a term life insurance to "cut losses".

In addition, he is also considering to terminate his child's whole life policy which was initiated in 2016.

After spending time getting himself educated, he realised there might not a need for his child to have a whole life policy.

In addition, the sum assured may also be not that significant in the future, given the inflation rate.

What self talk would you give yourself if you imagine yourself to be Person A in the given scenario?

AK says...
In a nutshell, we need life insurance if we have dependents.

If we do not have dependents, we don't need life insurance.

We can get adequate life insurance and keep the cost of insurance significantly lower by buying term.

Whole life insurance is relatively expensive life insurance but it has a saving or investment component which might appeal to some people.

However, for people with budgetary considerations, term life is the best option.

We need life insurance because bad things do happen but we do not need whole life insurance.

Before terminating your existing whole life insurance, make sure that you get term life insurance of equivalent coverage first.

Ideally, your term life insurance should be for as many years as you think you would have dependents.

I cannot and would not give specific advice but I hope that talking to myself has helped to throw light on the matter.

Related posts:
1. Holistic approach to financial freedom.
2. Insurance weakened family balance sheet.


AK71 said...

Aries Yn says...
So if no dependence we should not buy any insurance for protection?
Or should we buy something to cover our old age?

AK says...
If no dependents, you only worry about yourself.

What this means?

If you die, you die.

If you don't die, that is the problem. :p

So, you need H&S (Medishield Life) and you need Critical Illness/Disability coverage.

For old age, retirement funding, the correct insurance product is an Annuity (CPF Life).

Of course, the best insurance is self insurance, Passive Income. ;)

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