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Buying term life insurance: Sharing some lessons.

Sunday, September 7, 2014

I received this email in response to a guest blog (see related post at the end of this blog):

Hi AK,

On your latest blog on term insurance, you write that $50 a month can get  fresh grads $500K coverage. I am not sure if you meant to have CI coverage  included, if yes, the premium rate looks unrealistic in current market. To  share my recent term insurance purchasing experience -

It costs a male going 30, non smoking, for $1300 a year for death coverage of $1M, $200k for TPD and CI. This is after 30% discount from Aviva, the discount applies to the whole policy period, till 65. For a female going 25, it is $880 for the same coverage.

I got all quotes from major insurers and found this to be the lowest,  particularly with the 30% discount. If I were to opt for $200k death, TPD and CI coverage, the lowest annual premium is around $900. I feel  additional $400 premium to cover for $800 k death coverage is a bargain from Aviva, and $200k coverage is not sufficient, hence, I opted for this. Note that Aviva gave the discount to policy with coverage of $1m and above.

Lessons from this experience:

1. One has to get quotes from as many insurers as possible to know the market rates and to get the best rate.
2. Buy term insurance early. In this scenario, for the same coverage, the female got 5 more year coverage and pays less every year, and even less total sum, partly because she buys this term insurance earlier than the male! (I say partly here, female premium tends to have lower premium than male in same age etc.)
3. Another reason to buy early is that premium goes up every year due to cost and inflations.
4. Insurance industry is very competitive, take advantage if there is a massive discount!

What insurer did you get from? $100 a month is really cheap for that kind of coverage and I am quite sure it is hard to such rates now.

Regards, IIIW

I had clarified that the earlier blog post in question was a guest blog. It wasn't written by me.

We decided to share this email here as it could help many people out there who are looking to get term life insurance. Also, we could possibly get many more people to come forward to share their experience or perspectives.

Related post:
Term life insurance: Why buy term? How big a sum should I buy? How long a term should it be? How much does it cost?


CharlieK said...

I pay $930 per annum for 20 year term life coverage of 1 million in death/tpd and 75k in critical illness. If I qualified for preferred based on health screening then it would be about 100 less per year.

The plan is once the child is in college we would have accumulated sufficient savings so as not to need this insurance anymore.

I'm in early 30s.

Solace said...

Just for comparison purpose, The SAF Group Term Life Insurance offers attractive coverage for premiums.

Provide coverage for Death and TPD
Sum Assured: $500,000
Monthly Premium: $64.00

An addition benefit under this scheme is you can cover your dependents too

Sum Assured (dependents) : $500,000
Monthly Premium (dependents): $50.00

This insurance is make available for people who have completed National Servic or leave the employment of SAF.

The premium rate is FLAT UP TO age 65.

Solace said...

Just to add on,

I always have preference for term insurance over life insurance. To me insurance and investment should always stay separate.

I am always wary of the distribution course and effect of deduction in life insurance product. Study them carefully in the benefit illustration. Do check up what they meant and what percentage (%) is the "effect of deduction" on the "value of accumulated premium"

Know the figure and decide if it is too high a sum to be given off as commission, distribution expense, mortality charges and other charges under the policy.

If you come to same conclusion as me, then one would agree that term insurance might be better off.

Benji said...

Hi ASSI, may I ask your opinion on Universal Life Insurance as well?

AK71 said...

Hi Benji,

"A type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance) which is invested to provide a cash value buildup. The death benefit, savings element and premiums can be reviewed and altered as a policyholder's circumstances change. In addition, unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his or her accumulated savings to help pay premiums." INVESTOPEDIA

INVESTOPEDIA has a great write up on this too: Whole Life VS. Universal Life.

I don't think Universal Life Insurance is well known in Singapore and to me, it is just a more flexible form of Whole Life Insurance.

"You have the liberty to reduce or increase your death benefit and also to pay your premiums at any time and in any amount (subject to certain limits) after your first premium payment has been made." INVESTOPEDIA

It is still more costly than term life insurance as it includes elements of savings and investment. So, if you believe in not mixing up insurance and investment, this is not going to fly. ;)

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