How to compare???
I saw my long time AIA advisor some time last week. He wanted to explained to me that he cannot fathom why i would choose to cover all my risks by using term.
On his calculation, based on the level premium for AIA Recovery Lifeline, i will be paying a total premium of $41,259 and i will be getting nothing back after 50 years!
He goes on to recommend me 3 plans that may help me resolve this situation. These are a AIA Prime Life. It is basically a whole life policy that covers you $175K on $245 dollars per month. Premiums are non guaranteed. The total surrender value is 231K based for 40 years based on a Rate of return of 4.75%. I’m not sure why such a figure is used, cause its rather high to me. And he stress that the figures used by AIA is much less as compared to Prudential. Oh Man.
The next policy that he recommends is the AIA S$ Guaranteed 8 for life. It is a limited whole life that you pay for 8 years. premiums are non-guaranteed. The illustration that was given was for a sum assured of 60K SGD on 247.80 SGD.
The last policy is the AIA US$ Guaranteed 15 For Life. Similar to the G8, except that you pay 15 years instead of 8 years. Premiums are non-guaranteed. The illustration that was given was for a sum assured of US$75,000 on 158.25USD.
Here are my thoughts:
The basis of why he pitch this to me was because of the opportunity cost lost if i invest in term and not savings. I think i am handling it quite well.The question is, whether i can do better than the 4.75% or 6% that they use to illustrate. I think this figure is high, even if the insurance companies have the scale to achieve this by buying instruments that we might not have access to. In a recent article on the returns of some of these insurance firms. Asia life comes up tops in their long term returns and their is near 4.9%. Why is it that they are still using “if its good near 6%, you get…” ? I guess that is to amuse clients by psychologically giving them that hope and the rosy feeling.
I also hope that he can explain to me how this arrangement will benefit me compare to me covering my risks using term and investing on my own.He explained that in times of needs, I do not want to touch the majority of what i tried saved up. Having a limited whole life or whole life arrangement will ensure that my risks are covered and i would not need to touch on my savings. I think this is not very convincing. Limited whole life or whole life, is much more expensive because of the cash value component. Thus if i were to equate that arrangement, i can buy more term to mitigate the risks he mentioned and at the same time save on my own. There is no difference that way compare to putting the 2 together!
What i am hoping is that he can explain to me about owning the policy fast compare to the risks i take if i pay a term policy in the long run, but sadly this important explanation was not explained to me.
Lastly, to compare how well I can do on my own by buying, lets say SGS Bonds, I need an illustration of $100k sum assured. Look at those illustrations that he give me. Wah lao. how to compare?? The G15 is worse. its in USD!!!
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Comments
i’ve checked it out liao. i think it’s AIA Choice life that the premiums paid got to be longer than the projected 10 years
hi shlow,
yes, i will try to do that if they are willing to disclose. from your advice i take it tat you do not hold a favorable view on those trying to sell whole life. knowledge is bad sometimes. I spend most of my time fending off agents who wants me to get a “term” plan with a savings component.
my AIA agent called me. He said it is important for him to inform me that the level term that i pay will not have surrender value that i will be paying 900 bucks * 50 years worth of nothingness if nothing happens to me.
not sure if you get people telling you that.
regards.
hi dowz,
I think they aren’t selling it anymore. That was a long time back.
btw, sorry for not responding in the afternoon. i was busy coding.
regards.
hi. personally i feel a combo of term n WL will give us adequate protection.
- i dun believe in term all the way becoz
1) it will expire some day, will prob expire when i need it most
2) ok, granted that yes i can buy more term as time goes by, then we have the issue of insurability. what if i am already uninsurable due to worsening of health or suffer some form of disability due to accident?
then again, just buying WL or ILP to fully cover protection may not be sustainable as not many want to commit to higher premium.
by purely saving on our own, we are unlikely to enjoy better return on our cash. Current inflation rate will prob erode our purchasing power much faster than we know it. unless we can safely/confidently say we will do invesment thru dollar cost avg. however, are we that discipline to do it through good time n bad time?
thus having a combination of plan will ensure we have high cover, yet decent return on our money in future *at least we wont lose much to inflation*, and in the event cash is tight, WL or ILP plans will be a good avenue to obtain cash. it what i would call blind savings. better than go around borrowing from friends or relatives.
not sure if you guys agree, but it jus my 2 cents worth of opinion.
I tot nowadays all the benefit illustratrion will show return based on 3.74% to 5.25% as regulated by MAS. diff co have diff way of showing?
hi woohoo, if it is the case that you are currently having insurability risks, then all the more you should be going for term i feel, since your cost will be higher if you were to use whole life.
when it comes to inflation, saving is not enough. earning a real return based on equity is much more important.
i will ask you one thing: how do you thing the average participating fund will do in an inflation environment if a large portion of their fund follows the traditional portfolio allocation by allocating to bonds?
yes i agree cost will be higher with whole life. however i subscribe to the belief that a combo of term n WL / ILP is a safer bet. At least some term insurance comes with a *Guaranteed convertibility meaning to say, i can convert the term to a WL/ENDWN/ILP w/o medical underwriting* coz a term no matter wat, will end some day.
yes i agree saving is not going to improve our situation at when dealing with inflation. many wealthy pple out there get rich by investing. hardly we hear of pple getting rich by saving. however, they wont be tat poor. thus i also invest too.
no doubt par fund wont do as well compared to equity. however there is no perfect plan. what if the time i need money most and market plunge like the recent sell off. Would I be stuck? At least if i have some money in par fund, yes return wont beat inflation but at least i have some guarantee. it will buy me sometime till market recover.
I see various plan in our own portfolio as wat I would coin it as balance diet. no too much term, no too much WL / ENDW or ILP, not all into investment etc. jus like we shldnt take too much of carbo or totally no carbo / fats / etc…
I agree with woohoo that diversification is important and too much of one thing is not the perfect plan. A combination of different policies can cover for the imperfections of a particular plan. Yes term is better than WL in cost-wise, and money is a critical factor in choosing a policy. However, insurability risks exist, and what if one’s health suffer as one ages or suffers from disability? My family aunt cannot buy life insurance or even term insurance as she is diagnosed with an illness. The most she can purchase is an accident policy. She regrets that she did not purchase a life policy when she was younger and had not been diagnosed yet. Insurability risks do exist. It is the healthpeace young people who degrade WL policies. My two cents worth. My advise:
1. Buy a term and a small whole life if you are in the top 50% income earners in Singapore
2. Otherwise, a term policy is enough. May you be blessed with good health.
Ask any FA/IFA who recommends whole life policies over term policies to disclose the total renumeration they get from each policy.
Assuming they are truthful in their disclosures (note: some might give “misleading” disclosures), you can then decide for yourself if their recommendations are based upon self interest or not.