Are you well covered by your insurances?
note: Sharing my own personal experiences and encounters with my insurance.
I urge you to take a step back and start reviewing your existing polices. Especially, if your financial adviser (FA) has not done so for the last few years after they have closed deal with you.
1. Get your FA to review your policies
2. A summary table of your current polices to fully understand what plan(s) you actually have committed
3. Rethink if they are necessary and suitable at the current stage of your life
There have been so many negative and unhappy incidents happened to me since the past few months, given that Im now currently heavily pregnant. It was just terrible to share and perhaps the counter parties would find me very self-centered. (I shall not drift myself further and back to the insurance topic).
Firstly, it was a really personal context which has triggered this whole new level of me researching on my insurances. Getting to understand what I have actually committed myself for last few years and going forward. Indeed, it has been a very very expensive lesson learnt from my end.
To share that I am currently holding on to several insurance policies under one particular FA:
- 3 ILPs policy (myself and 2 kids)
- 1 Female CI policy
- 1 Endowment plan (25 years)
- Investment through CPF
- 3 HPs (myself and 2 kids)
Total up, the premium I have been paying is about $800 cash per month.
Given these policies, my insurance coverage as below:
- Death: $85,000
- TPD: $65,000
- CI: $90,000
(The rest of the policies are covering my two young kids.)
Which is super under assured given the circumstances of my current liabilities and life commitments.
Why is that so??
There are many financial bloggers who shared various pointers to determine the amount you should be assured, which you could easily google them. So for me at least the most important thing are my dependents' living expenses, child tertiary education and outstanding loans (eg, car and housing).
Im using an estimation calculator (link) to determine how much I should be coverage in the event of death or TPD or CI is to happen on me that leads me to 2.2mil and shortfall amount up to 2.1mil!
A more simple / straight forward calculation would be taking my monthly salary X the number of years left to my retirement age of 65 years. The result that I should be covered at least 1.8mil from now. However given the current coverage I have, the shortfall amount up to 1.7mil!
Hence, after much research, I have decided to purchase another insurance which does not hurt my wallet and covered me sufficiently till I reached my retirement age.
1. Term VS Life Insurance
However, not forgetting that I have the lady policy and endowment plan. Given the total coverage I have and if I were to terminate these 3 policies, I manage to save $120 per month on my premiums!
Hence, I have made the decision to purchase a 36 year term policy at a reasonable cost (w sufficient coverage), and consider saving and investing the rest of my money.
If you are keen to find out the ugly truths of ILPs here.
2. Endowment Plans
So.... apparently when I was first introduced to my current endowment plan. I "assumed" it was purely savings plans and I will get an amount (my capital) + interest by the maturity date. I have never once see it as an insurance policy because I was looking for saving plan only. Hence, this was introduced to me in a way that its a type of "forced savings" for the next 25 years.
HOWEVER, it was pictured so nicely that at maturity I will be receiving at least (projected) 4.25% compounding interest on top of my capital. (HAHAHA!)
Im LMAO right now because I felt so naive at my 2 years younger me.
In fact, this endowment plan which I have committed in do not guarantee the principal amount I have contributed over the years! There is no legal assurance that my contributions would be returned in full, let alone with the interest earned.
So it has been two years then I realised it, so ZERO surrendering value in the account right now where I have already planted $2.7k.
Take a look at the illustration (red underline).
If you noticed that the guaranteed amount upon surrender at maturity is only $18k when my capital is at 31,847. Whilst the non guaranteed portion is 24.916, assuming at 4.25% interest. It looks so good at the total returns but, in fact, the actual investment returns could turns out to be even lower than long-term returns earned.
You could read more here.
So why I ended up with such "unnecessary" policies in the first place?
It was because I know nuts on insurance and I was supporting a very very close family member when they started out in this industry 9 years ago! So I had my first "insurance + investment" policy when I was still schooling with no regular income. It was then subsequently based on a word "TRUST" which I believe the FA is recommending me policies which are relevant at my different life stages and looking into my cash flow. BUT I WAS REALLY WRONG because for the past 9 years there was no reviews nor discussion on my cash flow for the next plans~ I was only been told that I am under assured and there is a need to purchase more "policies" to have sufficient coverage in the event of TPD, death or CI.
I shall not blame the FA because I, myself did not do my due diligence to read up more on the policy they are selling me. It is a very very expensive lesson learnt for me and my Hub who also brought the same as me.
I will share more about my kids policies in the next post.
So, I urge people out there to start figuring and understand what policies you have actually committed.
It is very important to be sufficiently covered with the right insurance and at the same time save your wallet!
Loves,
Wena
Im using an estimation calculator (link) to determine how much I should be coverage in the event of death or TPD or CI is to happen on me that leads me to 2.2mil and shortfall amount up to 2.1mil!
A more simple / straight forward calculation would be taking my monthly salary X the number of years left to my retirement age of 65 years. The result that I should be covered at least 1.8mil from now. However given the current coverage I have, the shortfall amount up to 1.7mil!
Hence, after much research, I have decided to purchase another insurance which does not hurt my wallet and covered me sufficiently till I reached my retirement age.
1. Term VS Life Insurance
So term or life Insurance you may think.
Whole life insurance premiums are higher because the coverage last for lifetime and the policy has cash value. However their premiums are usually higher as compare to term insurance.
Whilst Term Insurance lies in the coverage period that it provides. So for me I opted this term insurance to cover myself up to the age of 65 years old with the following:
- Death: 1 mil
- TPD: 500K
- ECI: 250K (x3)
- CI: 500K
Comparing term insurance to my own ILP, though my premium has increased by $42/mth. My coverage has increased significantly!
However, not forgetting that I have the lady policy and endowment plan. Given the total coverage I have and if I were to terminate these 3 policies, I manage to save $120 per month on my premiums!
Hence, I have made the decision to purchase a 36 year term policy at a reasonable cost (w sufficient coverage), and consider saving and investing the rest of my money.
If you are keen to find out the ugly truths of ILPs here.
2. Endowment Plans
So.... apparently when I was first introduced to my current endowment plan. I "assumed" it was purely savings plans and I will get an amount (my capital) + interest by the maturity date. I have never once see it as an insurance policy because I was looking for saving plan only. Hence, this was introduced to me in a way that its a type of "forced savings" for the next 25 years.
HOWEVER, it was pictured so nicely that at maturity I will be receiving at least (projected) 4.25% compounding interest on top of my capital. (HAHAHA!)
Im LMAO right now because I felt so naive at my 2 years younger me.
In fact, this endowment plan which I have committed in do not guarantee the principal amount I have contributed over the years! There is no legal assurance that my contributions would be returned in full, let alone with the interest earned.
So it has been two years then I realised it, so ZERO surrendering value in the account right now where I have already planted $2.7k.
Take a look at the illustration (red underline).
If you noticed that the guaranteed amount upon surrender at maturity is only $18k when my capital is at 31,847. Whilst the non guaranteed portion is 24.916, assuming at 4.25% interest. It looks so good at the total returns but, in fact, the actual investment returns could turns out to be even lower than long-term returns earned.
You could read more here.
So why I ended up with such "unnecessary" policies in the first place?
It was because I know nuts on insurance and I was supporting a very very close family member when they started out in this industry 9 years ago! So I had my first "insurance + investment" policy when I was still schooling with no regular income. It was then subsequently based on a word "TRUST" which I believe the FA is recommending me policies which are relevant at my different life stages and looking into my cash flow. BUT I WAS REALLY WRONG because for the past 9 years there was no reviews nor discussion on my cash flow for the next plans~ I was only been told that I am under assured and there is a need to purchase more "policies" to have sufficient coverage in the event of TPD, death or CI.
I shall not blame the FA because I, myself did not do my due diligence to read up more on the policy they are selling me. It is a very very expensive lesson learnt for me and my Hub who also brought the same as me.
I will share more about my kids policies in the next post.
So, I urge people out there to start figuring and understand what policies you have actually committed.
It is very important to be sufficiently covered with the right insurance and at the same time save your wallet!
Loves,
Wena
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