Should I buy term plan till 99 years old?
I am very happy to receive mails from my readers because it means you are trying to change things after reading my posts. It is heartening to read about people taking charge of their own financial situations and insurance policies. I am no guru but I am most willing to help and contribute with my personal thoughts. You can contact me through my feedback form or just send me a message through SimplyJesMe's facebook messenger.
Anyway, I have received a few queries over this and would like to address this once and for all. For a start, you need to ask yourself why you need to buy insurance.
Reasons to buy insurance
To cover your existing debts so as not to burden your loved ones - Buy term insurance.
To pay for all hospital bills - Buy hospitalisation policies
To pay for any accidents without being warded - Buy accident plans.
To provide an income even if diagnose with illness - Buy critical illness plans.
To provide an income with early detection of illness - Buy early stage critical illness plans.
The price of term insurance is fixed but the price of other policies will increase with age. If possible, read up on ILP first before buying them.
Our retirement age is now 67 years old. More than 80% of the population will live longer than that and this number will only increase in the future. When you buy term insurance. the aim is to leave behind a sizeable amount of money so that your dependants can cover the loans that you have incurred, like housing, car loan and any loss of earning income.
Since natural death is also covered by term insurance, most people will die before 99 years old. Some of my readers have asked me if they should continue to buy insurance coverage till 99.
Buy till 99
Let's take for example a 26 years old, who is paying $800 death coverage every year for another 73 years:
From 26 to 99 years old, you will spend $800 * 73 years = $58,400
$58,000 price difference seems so reasonable for a $500,000 payout!
You have to consider these factors:
1) When you have retired, why would you want to continue paying $800 a year for insurance money? This money will only be given when you are gone, not to be enjoyed by you.
2) $800 might seems like a small amount when you are earning but not when you have retired and are living based on your retirement funds.
It is a good idea to ask your children to continue paying for the premiums for the 'guaranteed' $500,000 death coverage when you retire. This idea is a bit morbid because you child will be 'paying' for your death.
Buy till 65
Don't forget the magic of compounding. Let's buy the same $500,000 plan till 65 years old ($300) vs till 99 ($800) and top up the difference into our CPF SA account. With the current 4% interests, here's what we get:
From 26 to 65 years old, the special account will have $(800 - 300) * 39 years * 4% = $47,012
Continuing from 65 to 99 years old, you will get $47,012 + ($800 * 34 years * 4%) = $236,500
Top up CPF SA/RA account
If you really want to leave money behind for your dependants, I would encourage you to top up your CPF Special Account instead . The Special Account, which will be converted to your Retirement Account upon retirement, earns a guaranteed 4% interests yearly. Upon death, the money will not be eaten up by the government, they will be left behind in cash to your dependants.
In the event of unfortunate circumstances before age 65, your family will have a tidy sum from the term insurance to tide them through. Plus if you are lucky to live till long age, you can still get $236,500 at 99 years old. This is money you can use as it is in your own CPF account after retirement even though it is definitely lesser than the $500,000 pay out.
Conclusion
By buying a term plan only when you have loans and dependents is the best! However, if you have no discipline in saving and would rather the insurance company pays out accordingly, then that is not wrong either.
Just be sure to understand that you don't need insurance forever.
_______________________________________________________________________________________________
Like me on Facebook to be updated on personal and family financial matters.
Anyway, I have received a few queries over this and would like to address this once and for all. For a start, you need to ask yourself why you need to buy insurance.
Reasons to buy insurance
To cover your existing debts so as not to burden your loved ones - Buy term insurance.
To pay for all hospital bills - Buy hospitalisation policies
To pay for any accidents without being warded - Buy accident plans.
To provide an income even if diagnose with illness - Buy critical illness plans.
To provide an income with early detection of illness - Buy early stage critical illness plans.
The price of term insurance is fixed but the price of other policies will increase with age. If possible, read up on ILP first before buying them.
Our retirement age is now 67 years old. More than 80% of the population will live longer than that and this number will only increase in the future. When you buy term insurance. the aim is to leave behind a sizeable amount of money so that your dependants can cover the loans that you have incurred, like housing, car loan and any loss of earning income.
Since natural death is also covered by term insurance, most people will die before 99 years old. Some of my readers have asked me if they should continue to buy insurance coverage till 99.
Buy till 99
Let's take for example a 26 years old, who is paying $800 death coverage every year for another 73 years:
From 26 to 99 years old, you will spend $800 * 73 years = $58,400
$58,000 price difference seems so reasonable for a $500,000 payout!
You have to consider these factors:
1) When you have retired, why would you want to continue paying $800 a year for insurance money? This money will only be given when you are gone, not to be enjoyed by you.
2) $800 might seems like a small amount when you are earning but not when you have retired and are living based on your retirement funds.
It is a good idea to ask your children to continue paying for the premiums for the 'guaranteed' $500,000 death coverage when you retire. This idea is a bit morbid because you child will be 'paying' for your death.
Buy till 65
Don't forget the magic of compounding. Let's buy the same $500,000 plan till 65 years old ($300) vs till 99 ($800) and top up the difference into our CPF SA account. With the current 4% interests, here's what we get:
From 26 to 65 years old, the special account will have $(800 - 300) * 39 years * 4% = $47,012
Continuing from 65 to 99 years old, you will get $47,012 + ($800 * 34 years * 4%) = $236,500
Top up CPF SA/RA account
If you really want to leave money behind for your dependants, I would encourage you to top up your CPF Special Account instead . The Special Account, which will be converted to your Retirement Account upon retirement, earns a guaranteed 4% interests yearly. Upon death, the money will not be eaten up by the government, they will be left behind in cash to your dependants.
In the event of unfortunate circumstances before age 65, your family will have a tidy sum from the term insurance to tide them through. Plus if you are lucky to live till long age, you can still get $236,500 at 99 years old. This is money you can use as it is in your own CPF account after retirement even though it is definitely lesser than the $500,000 pay out.
Conclusion
By buying a term plan only when you have loans and dependents is the best! However, if you have no discipline in saving and would rather the insurance company pays out accordingly, then that is not wrong either.
Just be sure to understand that you don't need insurance forever.
_______________________________________________________________________________________________
Like me on Facebook to be updated on personal and family financial matters.
Jes
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If a person having loans and dependent starting 35 years old, would it be too late (expensive) to buy insurance?
ReplyDeleteHi Chris,
DeleteI don't think it's ever too late to buy, particularly because the older you are, the more you will need insurance, which is why the price goes up. Take a look at your finances and think through this carefully. I am sure you will make the right decision for yourself :)
While it is true that life insurance is most critical for dependent protection and loan cancellation, many people also buy life insurance for legacy planning, so they need it forever. Also, other insurance like medical insurance is something that people will also need forever. Please do not make such simplistic statement, especially when you don't have any relevant qualification. Don't make your personal opinion sound like it is a fact. Be more responsible please.
ReplyDeleteHi Siak Lim,
DeleteThanks for your feedback. Precisely because I am not an expert, I need to equip myself with more financial knowledge and am still learning. I make statements simple so that people can understand better and this is a personal blog, of course it is a personal opinion. I have no personal gain out of this and I welcome you to disagree with me.
Our retirement age is now 67 years old. 40% of the population will live longer than that and this number will only increase in the future.
ReplyDeleteSorry could you clarify on this sentence? Does it mean that 40% of those at 67 years old will live longer than 67?
Hi there,
DeleteYeah I got this data from Singstat. Since our life expectancy is 82 years old, I think this number looks about right. If my numbers are wrong, feel free to let me know, I am happy to amend accordingly :)
Hi Jes, not to challenge the numbers since it is from singstat. But just find it a bit weird.. if life expectancy is 82 and 40% of people at 67 go beyond 67 means these 40% live till over 100 in order for the life expectancy of entire 100% to be 82?
ReplyDeleteHi Cheryl,
DeleteYou are right to challenge it because I misunderstood you. I thought you feel that the numbers are too high, but it is actually too low. I initially wanted to write at least 40% would live past 67 but from this article (http://www.nationmaster.com/country-info/stats/Health/Probability-of-reaching-65/Male), it seems the percentage should double to around 80%. Good catch and happy that you pointed it out :)
Hope to see you around again soon cos I will definitely make more mistakes!
Hi Jes, actually the sentence caught my eye because recently was sick and the concept of mortality finally hit me. used to think i was invincible and would live till 80plus. so of course when i read that sentence was very concerned as 67 is a young age to D... :)
ReplyDeleteHi Cheryl,
DeleteThat's very true, we often take health for granted when we are not ill. I guess death is a pretty morbid subject which is why insurance issues are also not taken seriously. I am glad your small sickness woke you up, I am sure you are more prepared for everything else life throws you! :P
Hi Jes, Appreciate if you do a comparison for various term plans as you did with many things including diapers.
ReplyDeleteHi there,
DeleteI would love to do it just so I can compare for my own benefit too but unfortunately, the insurance companies do not make them easily available online, like for Integrated shield plans.
I need to have more insurance friends, haha! If you have the prices, please do send to me :)
Jes, you can check comparefirst.sg for all term plans offered by all insurance companies. I think agent is not necessary for an informed customer especially opting for term plans.
ReplyDeleteHi there,
DeleteThanks for letting me know. I visited comparefirst.sg, it's a good website to have an indicative quote. However, it's not really the real price. For example, regarding my pruterm policy, the premiums is not the same as what is reflected. I am not sure if comparing the prices there are truly accurate. Furthermore, there are many criteria such as age, insured amount, gender, smoker and others. Every companies offers differently so I think it will be too difficult to get a straight up answer.
I think going to comparefirst.sg to check will be better. I agree if you think agent is unnecessary, going direct is better but the cap is only up to $400k. All the best!
Hi Jes... Thank for writing this article... I found your though here very logic compare to others term vs whole life article that I have ever read. Thanks for sharing Jes..
ReplyDeleteHi Sugarfluff,
DeleteMy pleasure! It makes me happy that you follow my reasoning and that makes me motivated to keep writing more. The key thing is do something about your plans after reading it, that's more important. All the best~ :)