Why I changed ILP to Term insurance

Jes , , 17 Comments

This is a thorny issue among everyone, especially so when you just graduated and started working. Turning independence means you will have to consider the expense that you will incur and health related expenses are the biggest worry.
The scariest part is not the hospital but the bill!

Medishield Life is a great plan to allay concerns about hospitalization fees and can also cover some outpatient treatment like chemotherapy and dialysis. However, they only cover B2 (6 bedder) and C (8 bedder) wards in government hospitals.

For full coverage on A (1 bedder) and B1 (4 bedder) ward in government hospitals and also all other private hospitals, you will need the Riders program. For youngsters, I would also recommend upgrading to a Riders program which means one will pay nothing for private hospitalization bills. It will cover all deductible and co-insurance portion as Medishield Life does not cover those charges. As you grow older, the premiums will increase so you may want to consider if you would want to continue with it. The price comparison of the different integrated shield plan is discussed here.
The various Riders plan: IncomeShield, HealthShield, SupremeHealth, MyShield, PruShield
Why do I need to insure in case of death?
This is so as I do not leave behind debts, expenses, loss of income that will be incurred and especially if you have dependents. Without any dependents, financially speaking, one do not need them.

Why do I need critical illness plan?
One will get a huge lump sum payment from illnesses like major cancers, coma, kidney failure, heart attack, and stroke. Part of the hospitalization bills can be covered by Medishield Life. There are 36 different kinds of serious illnesses and the lump sum payment is also to cover the loss of income. Similar to the payout for death, this is more useful if one has dependents. It is said to affect less than 5% of the population but statistics are not useful for the unlucky ones. I have wrote more about critical illness vs riders plan here.

Why do I need early stage coverage?
This is when one detects the 74 illnesses early and good for cancer and diseases and also some of the less serious situations. Totally optional but normally you can top up with a small amount if you buy their critical illness plan.

Why do I need accident coverage?
I travel very frequently and thought this would be a good idea for me. However, this is entirely optional.

Take a look at my old and new insurance plans for a 29 years old non smoking female:
Do take note that I am not advertising for Prudential.
I stuck with them due to emotional reasons but you can look for similar policies anywhere else.
I think I should not have bought PruLink Protection Plan right after graduation. It comes with critical illness and early stage coverage and also a huge portion to Unit Trust investment. This Unit Trust investment is why the plan is also called Investment Linked insurance Policy (ILP). You can get a sum of money back at age 55 but your principal sum is not guaranteed. A few years ago, I have not started investing and thought unit trust could be a good passive income. However, looking at the funds and the returns, out of the 31 funds they have, only 2 manage to hit above 9% and 23 of them can't hit 5%. Many of my colleagues told me that their portfolio is now losing money. STI ETF is definitely a much better choice.

Comparing the huge increase in coverage and from paying $266 to $139 a month, I feel so much better saving $127 a month with my 25 years term insurance now. 1 million coverage is due to the rule of thumb for 10 times your annual salary, or what your debt could be. I could downsize further to remove Crisis Care and Accident plan but with dependents now, I would rather leave it as that. 

Do I blame my insurance agent? 
No. It's my fault for not finding out more and I did not know what I wanted at that time. It will be a bigger fault of mine if I do not review my policies every year and change when I understand better. If you do not know what you are covered and how much, then it's time you find out.

Feel free to provide your valuable insights on my plans! Do like me on Facebook to keep updated on personal finance matters. 

Jes

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17 comments:

  1. Term and ILP serves different purposes. I agree that for people who does their own investment, the money would be put to better use with a term. However, most of the people simply spend the extra amount. Personally, I use Aviva NS term as it's the cheapest term around for NSmen.

    ILP also provides a choice for their holders to continue their plan beyond retirement age when they need it most (due to failing health etc), unlike term plan. Of course, return wise nothing can beat doing it yourself.

    Keep up the good work!

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    1. Hi there,

      Thank you for your comments! Yeah I heard of Aviva NS too, good for men so I wonder what's the equivalent for women. It's true that ILP provides a backup plan during old age but to be honest, I think the money saved over the years (ILP vs term insurance charges) could actually cover it.

      Hope everyone is as knowledgeable about their insurance as you! :)

      Delete
  2. Hi Jes,

    Thanks for the sharing. Am I right in understanding that you meant that your early CI coverage came free with your Crisis Care? Is it convenient to share the name of the product that is offered?

    Just as a side note. The Private, A1 and B1 (possibly consolidated by government soon into a standard B1 plan) plans are Integrated Shield Plans (IP). You can buy them without the riders too and you are right that deductibles and coinsurance are only covered by riders.

    And to share my experiences, I too terminated my ILP with a 90% loss after 1 year after I realized the actual mortality cost when we are older. I thank my agent for "teaching" me the lesson on personal finance.

    -wj

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    1. Hi Wei Jian,

      Thank you for correcting me, I have put it wrongly, it's a small amount of top up to get the early CI coverage on top of Crisis Care. I have edited it accordingly :)

      I saw from the Medishield Life booklet that "There are plans to introduce a Standard Integrated Shield Plan (IP) by first half 2016. The benefits will be pegged at Class B1 wards in public hospitals." I am not sure about other wards and private, perhaps you have more information on that. I used to buy the non-riders type until friends who got in and out of hospitals advised me otherwise.

      Appreciate your sharing and short term loss is definitely better than long term bigger losses. Haha, glad we have all grown wiser :)

      Delete
  3. Hi there. I'm a financial consultant representing Prudential. It's great to see a truthful post about someone's experience with insurance. For myself, I would usually think twice about recommending a term product because when the policy term ends, nothing will be paid out which could mean that the client is paying a higher price. However, since you are a well traveled person, I think that it is better safe than sorry.
    ILP policies is something that is easy for me to recommend simply because it is the most flexible. You can vary the protection amount to either give you a higher sum assured or buy more units. And also, for PruLink Protection Plus Account, you can add or remove riders. You can take a premium holiday in case you need the money for something else and what is even better is that you can withdraw your units for cash. However, those that consider this plan should also note that this requires good communication between the policy owner and the FC. Even though this is accessible and is managed by Fund managers and fund houses, this is still investment and requires regular balancing in order to maintain a good portfolio.

    If you have any questions, feel free to contact me. My name should be linked to my facebook page. message me there.

    ReplyDelete
    Replies
    1. Hi Zul,

      I am not recommending any policies, I am just stating what I have done. In my case, I greatly prefer term policy. Even though there is no pay out at the end, the savings from the term policy compared to the ILP would give a lot more returns and I could take more premium holidays. Saving the additional $(266-139) *12 months *30years = $45,720... So you can see why this could be an option.

      Thank you for sharing your position but please try not to advertise on other's blog.

      Delete
  4. The premium for term does not increase as we get older?
    What's the max age the term plan will cover us to?
    And, what happens to insurance once the term plan stops coverage thereafter?
    Just thinking out loud here

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    1. Hi Fooz,

      No worries, you are asking the right questions and I am happy that you are looking at my other posts :)

      Anyway, the definition for Term: It is an insurance product that covers a limited term in return for a constant monthly premium. So the premium will not increase whereas for ILP, it will increase. The max age depends on how many years you want your term contract to cover, for example, 20, 30, 40 or even 50 years.

      Once the term stops coverage, then you do not have any insurance, you can buy another one at any time or just don't need insurance. Honestly, when you are older, if there is no debt or dependents, there might not be a need for insurance. Hope this helps!

      Delete
    2. Hmm, I am not sure if the term plan can cover 50 years.. Coz iirc, the max age term can cover is up 65 years old. Assuming the person is 35 years old now, he can only buy 30 years of term plan. Not 100% sure, but something like that.

      Delete
    3. Hi Fooz,

      Yeah you are right. Normally it's around 30 years. But I saw from Ntuc Plus! Term insurance (http://www.income.com.sg/insurance/life-insurance/term-life-insurance/plus!-term-life-insurance) that you can start buying from age 15 to 25 and adults from age 21 to 65. So I guess you can cover yourself for 50 years, just have to buy a second policy.

      Besides that, Prudential offer term life up to 100 years of age (http://www.prudential.com.sg/corp/prudential_en_sg/solutions/pruvantage/PRUTerm_Vantage.html) so 50 years term is definitely possible.

      Thanks for clarifying :)

      Delete
    4. ahh... 100 years old! cool!
      thanks for that!

      Delete
  5. Hello Jes,

    May I ask if your pruterm vantage covers you to 100 years of age? I m 27 and just bought the same plan for 500k coverage but it was at $860, and crisis care rider 250k at 977$
    strange that Im younger but paying more

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    1. Hi Wee,

      I only bought it for 25 years with 1 million coverage and quite different from you. Yours would be definitely more expensive with a longer term :)

      Delete
  6. Hi! U mentioned you regret your plan, have you thought of terminating it? I'm regreting a plan I've bought (pruvantage) and wondering if I should terminate it. It's only the second yr.

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    1. Hi there,

      I regretted buying the ILP which is Prulink but never regretted buying Pruterm vantage which is a pure insurance policy. I terminated Prulink after 2 years, why do you want to terminate the term plan?

      Delete
  7. Hi! Was it complicated to terminate a policy? My pruvantage is actually like an investment plan which is 20years. I'm thinking of terminating it because of the high monthly premium ($750/month) and slow/no returns due to the situation of the economy. Basically I boiled down it to bad choice. Do you have any advice how to determine if you made a "right" choice for your plan, especially if you're still pretty uncertain of your future and plans? Or is it wise I just continue? Other than talking to my insurance agent, I really would like to hear someone's else impartial view. Thanks :)

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    1. Hi there,

      Terminating a plan is easy because it's your money. The only difficulty might be insisting on doing so when the insurance agent try to dissuade you.

      The best choice is of course when your returns is the highest. Thus you have got to examine the returns from pruvantage versus other options. Hope this advice can help you out :)

      Delete