Tips on personal insurance

1. How much life insurance do I need?

It depends on your personal circumstances. If you have dependents, you should aim to insure for 5 to 10 years of your earnings. If you have accumulated savings, the insurance cover can be reduced by this amount.

For example, if you earn $40,000 a year, you should have life insurance for $200,000 to $400,000. If you have accumulated savings of $50,000, this can be reduced from the amount of your insurance.

As a minimum, you should insure for 5 years of earning. If you are able to afford it, you can increase your coverage to 10 years of earning.

The sum assured is payable on death and permanent total disability.

2. What type of life insurance should I buy?

You should buy decreasing term insurance that covers you up to your retirement age, say 65 years.

If you are now 35 years old, you can buy a decreasing term insurance to cover you for 30 years.

If your sum assured is $300,000, you will be covered for $300,000 during the first year. The sum assured will reduce by $10,000 for each subsequent year, until it disappears completely at the end of 30 years.

The reduction in the sum assured each year will be offset by your savings for the year. As your savings grows, you need less coverage for your life insurance.

The premium that you pay for decreasing term insurance is about 50% of the cost of level term insurance. It is about 20% of the cost of a whole life insurance.

By paying a lower premium for your decreasing term insurance, you have more money to save in a low cost investment fund to earn a higher return for your future needs.

3. Do I need medical insurance?

If your employer covers your medical expenses, you do not need any personal medical insurance.

If you wish to buy a personal insurance now, so that you are assured of continuing coverage after your retire from work, you should choose a low cost Medishield plan provided by the Central Provident Fund.

There are many Shield plans in the market. They cover different classes of wards in restructured and private hospitals.

In selecting your plan, you should consider the total lifetime cost. You should add the premium for the various ages from now until you reach age 85 years. As the premium rate increases with age, you must take the higher cost into account, when you select your plan.

There is no need for you to buy an expensive plan, unless you have a high income. If you enter into a subsidised ward, your medical expenses will be quite affordable and can be covered by Medishield or a lower priced private Shield plan.

Do not spend too much premium on your Shield plan when you are young. You need the savings to cover your insurance premium and medical expenses when you grow old.

The Shield plan has a Deductible and a co-insurance portion, which have to be paid by you. Some insurance company offer a rider to cover these items. As the amounts are not large, you do not need to buy the rider. You can pay them from your Medisave account.

4. How much should I spend on insurance?

You should spend not more than 2% of your earnings on the life and medical insurance on your life. If you include your family, you should spend not more than 3% of your earnings.

By spending less on insurance, you can set aside more savings for your retirement. This should be 10% to 15% of your earnings.

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Do you agree with the suggestions?

Visit to Manila 14-16 July 2008

I will be visiting Manila from Monday to Wednesday of next week. I am conducting the Business Simulation Game (BEST) in Manila.

I have created a few postings that will appear on the scheduled dates and times over the next few days.

Existing Life Insurance Policies

Some people asked for my advice on whether they should continue their existing life insurance policies, or should terminate them and buy a term insurance policy.

Here are the general rules of thumb:

1. If the policies have been in force for more than 2 years, you should continue the policies as most of the upfront charges have already been incurred.

2. If the policies are taken for less than 6 months, it is generally advisable to terminate the policies and take a loss. However, you should buy a term insurance policy first.

3. You should avoid buying a new whole life, endowment or investment-linked policy as the charges are too high. It is better to buy term insurance for your insurance protection and to invest in a low cost investment fund.

Read this FAQ:
http://www.tankinlian.com/faq/savings.html

Joke: Amputed the wrong leg

A diabetic was admitted into hospital for amputation of a leg. He woke up on the day after surgery. The doctor said, "I have good news and bad news".

The patient wanted to hear the bad news first. The doctor said, "The bad news - we cut off the wrong leg. Now the good news. Your other leg is getting better."

Joke: Planning for retirement

My friend sent this joke to me. "Your insurance agent sells life insurance to help you plan for your retirement. However, the policy gives such a poor return that you cannot afford to retire. Actually, the agent is planning for his own retirement from the high commission that he earns from the policy."

Note: This joke does not apply to term insurance policies and life insurance policies that pays low commission.

Insurance for a child

Dear Mr. Tan,

I am planning to buy an insurance plan for my younger boy of age 7. I am looking at either the LUV plan which is $12 per month for $100K as compared to the Legacy Life CI plan recommended by my agent.

I am in favour of buying LUV, but my agent told me below:

""I have deviated from the basic & giving wrong emphasis and that I have made the 7 common insurance mistakes parents make. No doubts term policies are a lot more affordable & more cost-effective to buy a portion that will last almost as long as you live and the rest to cover just your working years. When come to insurance for minor, health insurance focus is on both CI & H&S & the aim is to lock-in insurability & gifts of love. ""

I am confused. He is right in the above statement? Thanks very much for your time

REPLY
There is no need to buy insurance for your child, except for medical insurance. It is more important that you should adequate term insurance on your life, to cover your earning capacity.

Read this FAQ:
http://www.tankinlian.com/faq/childlife.html