Decreasing Term Assurance

It is difficult to buy Decreasing Term Assurance in Singapore, as many life insurance companies are not keen to offer this product. I hope that this situation will change and some companies may sieze this market opportunity.

Let me explain the concept of Decreasing Term Assurance. Suppose you earn $4,000 a month and you need to set aside $2,000 for the upkeep of the family. You should choose a Term of 25 years, so that your youngest child will be independent at the end of that period. You will need a sum assured of $2,000 X 12 X 25 = $600,000. As each year passes, you need a lower cover, as the period of dependency reduces by one year. Your sum assured can reduce by $24,000 a year.

I assume that you have bought insurance to cover the mortgage of your home, so the home will be fully paid in the event of premature death. The $2,000 a month is adequate to cover the needs of the family.

If you buy insurance for $600,000 at age 30 for 25 years, and you wish to sum assured to remain level, you have to pay an annual premium (estimated) of $1,000. If you buy a Decreasing Term, the annual premium will reduce to $400 (or therabouts). By passing less on the premium, you can have more savings in a low cost fund for your future retirement.

Tan Kin Lian