"Unemployed but still need insurance because of my child."

Reader says...

I am 48 this year. I have a child, a girl age 9. 

I have lost my job for almost a year. 

I also have a life whole life insurance policy that is over 20 years. 





As I have no job at the moment, I am thinking of terminating it to help my cash flow.

You may say that my girl and my spouse need the death coverage but I am currently also paying for a term insurance of $1 million on my life with only death benefit. 

I feel that this should be sufficient for my family should I leave this world before them.

If you were in my shoes, what would you advise yourself? Thank you.

AK says...

I believe you have thought this over carefully.

I would also suggest that you find out how much a term life insurance for a smaller amount of say $500,000 might cost for your age for the next 12 years. 

This is an idea with your girl in mind. 





She will be age 21 in 12 years' time and will probably be able to take care of herself by then.

Ask about a reducing term which is less costly.

 A reducing term basically sees coverage reducing over the years. 

In this case, 12 years. 

Of course, the cost of such an insurance policy should also reduce over the years. 

You might even decide at some point that you don't need that $1m term life insurance.







"I am still of the opinion that we need insurance but we do not want to overpay for insurance. If I had known this in my younger days, I would not have bought whole life insurance or endowment products when I was in NS and as a fresh graduate."

Source: Comments Section of "Free ILP or Term Life?"





Related posts:
1. Free ILPs or Term Life?
2. Consider terminating whole life policies.
3. Why buy term? How much to buy?

How did STE who is married with children retire at age 44?

It has been a while since STE last wrote to me. STE is now enjoying his early retirement and has generously decided to share some thoughts with us here:

Hi AK ,

Yes , is me , STE. I have stop working since end last year and still on “sabbatical leave“ till now (it might become a “permanent leave without ending date“ haha ..

Escaping from 9-5 working environment is really something different and is a big change for me and my life style. Now, I have more time with my kids and doing more exercise (be more healthy now, I guess less stress also partly contributed to my better health, I used to have migraine and gastric for long time, but after almost 6 months after staying at home and doing nothing, all these medical symptoms seem gone. :)

Well, I thought of sharing my latest financial portfolio and some thoughts on investment strategies. 

My friends wonder how am I going to survive without a job for past 6 months. the answer is, yes, “Passive income through long term investment.“

Allow me to tabulate my “passive income“. Since day 1 of my investing journey, I like dividend very much, you may notice from my earlier post, the share I brought in early days on Malaysia stock market for counters like “Perlis Plantation / BJ TOTO/ PB Bank / Oriental Holding / Tan Chong / Malakoff /BAT etc “ were those with high Dividend Yield and good fundamentals.

Dividend Matters:

To show the importance of Dividend in process of wealth accumulation through investment, I would like to append below table. YTD accumulative Dividend and Qtrly dividend I received. I kept record on all the dividend I received since day one of my investing journey.

• Current Qtr dividend range from $40-50 K and total accumulated dividend is hitting $ 1 MIL soon
• About 42 % of total profit from our portfolio came from Dividend Income .
• Notes : Jump in dividend collected since 2009 was due to fund transferred from my Malaysia’s share portfolio and house since we decided to convert our citizenship. I was really "Lucky" as mentioned in my previous post on your blog.
• Notes : Quarterly dividend seems smooth out from early 2015 after Asia Pay TV change to pay their dividend on Qtrly basis.

Does size matter? Definitely. To have such amount of quarterly dividend, one needs to have quite substantial amount of portfolio but look at the chart, everything must start with “small steps“  and remember “Rome was not built in a day“. "Gamba Teh"!

What is your CAGR  and “power of compounding “ …

I think all the serious investor need to know what is their own investment CAGR. Well, our portfolio manage to achieve 11.13 % for past 17 years. Gone through various market cycles … dot com/ SARs/ 911/ GFC / etc. I hope my portfolio could sustain in next crisis.

Since market’s long term return on investing was around 8-9%, sorry, I have taken some of your money from market. Based on quotes from the book  “The incredible shrinking Alpha“, ”Alpha is a Zero-sum game (before cost ), meaning that for some investors to generate Alpha, they must exploit the mistakes of others“.

Picture worth more than thousand words :

Other than two investment strategies I have shared previously ie "Margin of safety" and "Mean Reversion vs Market Cycle", I would like to share few pictures which I deem important for all serious investors.

< On Market>

< Andre Kostolany: "Psychological create 90% market ">

"I can calculate the movement of the stars, but not the madness of men.” , Sir Isaac Newton

"Investors want certainty, and we cannot give them certainty. We can give them high probability; we cannot give them certainty" by Charles William Hamilton

Note: Of course, one needs to know how to avoid the “pit fall“ of investing in “hot or hype“ stocks from time to time.

< Sun Zhi : Know yourself , Know your enemy (market ), hundred battles, hundred wins.> 

< On Forecasting :>

Warren Buffet : “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

< Short term vs Long term >

• Short term is full of noise and volatility, only long term will show result.

When we invest in property or setting up own business, we could afford to wait for years to see the result, but our expectation change when we invest in stock. We buy today and hope the price will increase much tomorrow.

Patience. Wait for the durian to drop.

< Investing during Crisis time >

Investing in crisis time can be really rewarding and it has shortened my journey to Financial Freedom. I still hold most of stock I bought during crisis which gave me double digit Yield on cost.

Warren Buffett: 
The incorrect lesson often preached that volatility is a proxy to Risk is dead wrong. Volatility is far from synonymous with Risk. Volatility can create opportunities or risk at the same time.

I am holding approximately 20% cash now. I was 100% fully invested 2 years ago. Since then, I have taken some money off the table and keeping my dividend received as War Chest as well.
I always look at CPF money as “investing in triple A rated bond“. I’m not using any of my CPF money to invest at this moment but I will use that once crisis hits same as during GFC.

AK’s idea of maximising our CPF-SA account is absolutely right. $25K of interest p.a (both me and my wife ) is really a good money to accumulate in next 10 years before we hit 55 . By then , we would have more than $1 MIL in our CPF accounts combined. This is another cushion in case market crashes drastically. Not forgetting the "power of compounding ", the CPF returns around 3% average (combine OA/SA/MA) is good money in the long run.

Last but not the least, on <Money Management and Life style >

As I mentioned in previous blogs, our lifestyle is rather simple and I’m staying in a HDB flat and eating at hawker centres or cook our own meals. With current our dividend income, we still could save up to 60% from total dividend amount. I think that is another cushion in case market crashes and dividend drop by half. I guess we still can survive .

Even before we talk about investing, living below our means and saving the difference for investing is the most important or key to Financial Freedom .

Cheers to all and I hope all could have smooth and wonderful journey to achieve your own financial freedom (and knowing how much is enough in your life).

NOTE: I think some readers did ask me on what books I recommend to read in previous blogs where I failed to answer that time. Below is a list of books I would recommend for all the serious investors. One may notice that I would recommend more Market History and Psychology as compare to Economics or pure Finance / Stock analysis. As I mentioned before, Market is 90% of people and 10 of Economy. And History repeats itself without fail.

- END -

I am sure we get a bit tired of hearing the same old stuff from AK all the time. So, thanks to STE for sharing. Much appreciated. Some points STE made are great reminders for me too.

So, make some time to meditate on what STE has shared with us and maybe read a few of the books he has listed too. Go to a nearby public library or do a bit of charity by buying pre-owned copies from BetterWorldBooks.

We also want to remember what Charlie Munger said before:

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." Charlie Munger

Oh, most importantly, congratulations to STE on his early retirement and improving physical health!

Related posts:
1. "Patience is the hardest part..."
2. Mystical art of wealth accumulation.
3. STE's story: Millionaire Next Door.
4. STE's story: Investment strategy.
5. STE's story" Personal finance.