Is early critical illness insurance necessary?

I have blogged about the importance of having critical illness insurance before and because I get questions from readers now and then on whether early critical illness insurance is essential, I decided I should blog about it.

Please bear in mind that this is just my opinion and some might disagree.

Reader:
I've started my investing journey and I am quite amazed I've learnt quite a lot ever since I started reading your blog last year. 

I would like to seek your talking to yourself opinion. 

Is it essential to get an early critical illness term insurance? 

The premium is really high.





AK:
When we buy insurance to cover ourselves against critical illnesses, it is so that we get paid a lump sum of money if we should be diagnosed with one of the dread illnesses.

The difference between regular and early forms is that the latter will pay the insured once diagnosed with a dread illness even if it should be at an early stage. 

The regular form would only pay if the illness is at an intermediate stage.

I am of the opinion that we need regular critical illness coverage because it could be that we must stop working to undergo treatment. 

We could be too ill to work. 





Critical illness coverage gives us a lump sum payment. 

Now you know why this is necessary. 

We need this in case we have to stop working. 

It provides us with money to continue living our life as if we were still working (for a long while, hopefully) until we get better.

At the early stages of an illness, it is conceivable that we would still be well enough to work and would not have to give up our regular income. 




So, it is my opinion that it is not essential to have early critical illness insurance. 

We don't need it.


Any medical treatment required if we should be diagnosed with a critical illness in the early stage should be covered to a large extent by our H&S insurance. 

Think Medishield Life, for example. 

We don't need early critical illness coverage to pay for our medical treatment.


The early variant of critical illness insurance is also unattractive because it is very pricey. 

How much more does it cost?







For example, 

A 30 year old male might have to pay almost $800 per year for a $200,000 death with regular critical illness benefit till age 65 but he might have to pay more than $2,000 per year if he were to opt for early critical illness benefit.

That is 150% more! 

If it were 10% or 20% more, maybe, but 150% more? 

Mind boggling.

I have blogged about what I feel is the best insurance in life and I feel that the extra money used to pay for early critical illness insurance could be better used towards this project.






If you don't know what I am talking about, see related post #2 at the end of this blog.

Insurance is absolutely necessary against events which we will not be able to recover from easily without financial help.

For all other events, insurance is probably a "nice to have" and not a "must have".

Buy what we know we need and not what sales people want us to think we need.




Related posts:
1. Without CI coverage?
2. Best insurance to have in life.

Which type of insurance for parents and why?

Reader says...
What do you think of the idea of getting insurance for own parents who are in their late 50s and still healthy?

My parents do not have insurance coverage.

I'm planning to get for them a hospitalization insurance + term life w/ critical illness.






I view it as a protection against my financials should anything happen to them.

Because at the end of the day i'm probably be the one who is footing the bill should any mishap happens.






Thinking along that line, i'm thinking if i should actually profit from the demise of my parents. As a form of investment from the lump sum payout from term plan =X

What would you do?

AK says...
Life insurance are for people with dependents.

If your parents do not have dependents anymore, they only need Medishield Life (H&S) or a private shield plan if they can afford it.





If they are Singaporeans, they should already be covered by Medishield Life.

If C or B2 wards in government hospitals are acceptable, they do not need a private shield plan.

As for critical illness (CI) coverage, it is to provide us with a sum of money for our living expenses in case we are hit with an illness that prevents us from working and making a living.

H&S expenses should be covered by a H&S plan mostly and not by a CI plan.






If we no longer depend on income from employment and are able to retire comfortably, I don't see the need for a CI plan (especially when they are so expensive for seniors).

Please read related posts too.





Related posts:
1. Insurance weakened a family's balance sheet.
2. Do your parents have enough insurance?
3. Why do we need critical illness coverage?

SAF Group Insurance and CI coverage.

I received an email from a reader, B, and he has agreed for it to be published in the hope of getting more ideas from other readers here:

Dear AK,

Thanks for your ever inspiring and encouraging blog posts for our daily living.

I would like to seek your advice (or what would you do if you were in my shoes) on some insurance matters.

As a background, I am a 27 year old working professional working for around 2+ years, just married, received my BTO flat and planning to have kids next year or the following. I owned a few income producing shares like REITS (not surprising as I am a regular reader of your blog).

I do not own a Investment linked insurance policy nor an endowment. I do have the SAF Group term insurance (Assured for $300,000) as well as the MyShield Plus (the hospitalization plan plus full rider).

I received a letter from SAF Group insurance, asking me to add 2 riders to my term insurance:

1) Supplementary Living Care  - For 30 critical illnesses, Sum Assured $300,000, monthly premium of $30.00

2) Living Care Plus - For common early critical illnesses, Sum Assured $200,000, monthly premium of $20,00

FYI, I am currently paying monthly premium of $38.40 for the SAF Group Term Insurance. 

More info on the 2 riders can be found below if it is useful:

http://www.aviva.com.sg/pdf/SAF_Living_Care_Product_Summary.pdf

http://www.aviva.com.sg/pdf/SAF_Living_Care_Plus_Brochure.pdf
 

 

AK's reply:

Hi B,

I enjoy reading your email because from the looks of things, you are doing things right and doing well. Happy for you. :)

I firmly believe that we need CI (critical illness) coverage. So, I would encourage that you take up the rider. I am not so sure about early critical illness coverage though. I suppose for people who might not have a lot of money put aside for emergencies (or do not have meaningful passive income), this would provide peace of mind.

I like to look at the annual cost instead of monthly cost so as not to be lured into an illusion of cheapness.

$30 x 12 = $360 a year. For a $300,000 coverage, it is inexpensive.

$20 x 12 = $240 a year. For a $200,000 coverage, it is also inexpensive.

If you do not yet have a CI plan, you should give the above serious consideration.

Genuine and constructive comments are appreciated, as always. Thank you.
-------------------------

Update: 13 September 2016.
A reader received this:

Value for money!

Complete table: here.

Related posts:
1. Graduating soon? Steps towards financial security.
2. Free Investment Linked Policies or Term Life Policies?

Total and Permanent Disability (TPD) Insurance.

Reader:
Won't you be also concern for yourself? The TPD part.
Medical is already covered for everyone aka Medishield.
I believe most people say not afraid to die, but afraid cannot die.

AK:
Why should I be concerned?






Reader:
Sick and disability. I imagine this 2 are for everyone to think about. Sorry I don't mean to pry. But sought your thoughts on what's necessary to insure for own self. If not necessary one then don't have to pay for it.

AK:
If we have dependents, we need life insurance. Buy term. We also need the following:

For hospitalization, H&S.
For critical illness, CI insurance.

If you are still reliant on your earned income, then, TPD coverage is relevant to you.

It is relatively costly but it will give you peace of mind while you are building your portfolio or until you are able to tap your CPF savings.

Reader:
The insurance agent out there won't really think for customers. We have to be our own agent. But sometimes can't get the "logics" yet. Thank you again.

Best insurance is still: THIS. 






Of course, not everyone is able or willing to be an investor. 

For many people, building up their CPF savings is probably the best way to bolster retirement funding adequacy.

For them, if a meaningful lump sum is available for withdrawal from their CPF account at age 55, having TPD coverage till age 55 could be sufficient.

Otherwise, some amount of TPD coverage till age 65 is probably a better idea as the earliest CPF Life would start paying a monthly income for life is at 65 years old.






Whether we need TPD coverage and to what age we need it will depend on when we will be able to work when we want to and not because we need to.

Yes, if you are a regular reader of my blog, this should sound very familiar.

Related posts:
1. Term Life.
2. H&S (Medishield).
3. Critical Illness.
4. Eldershield.
5. CPF Life.
5. Start with a plan...
6. Work because we want to...

How insurance weakened a family's balance sheet?

This is the continuation of a conversation with a reader who is having difficulty accumulating an emergency fund and who depleted her savings after her dual income household became a single income household.

Reader:
I just read on "How many 20 years and $29,000 do we have?"

I have the Prulink too and have been paying for 12 years now.

Apart from this I have an endowment plan to be paid for another 9 years before mature.

My husband and I plus 2 kids have whole life plans, personal accidental and hospitalisation plans.








AK:
You are (probably) paying too much for insurance.

Your children don't need life insurance. Life insurance are for people with dependents. Children don't have dependents.

I won't touch investment linked policies or ILPs (e.g. PruLink) even with a 5 feet pole. I don't mix investment and insurance.





My action plan if I were in your shoes:

1. You and your husband just need term life insurance (+Critical Illness cover). (You need life insurance until your children are no longer financially dependent on you.)

2. You do not need whole life insurance. Definitely, your children don't need life insurance (until they have dependents). It is a luxury.

3. ILPs are terribly expensive life insurance. (I would get rid of this.)





4. Keep the hospitalisation insurance (H&S). (This is essential.)

5. Accident insurance is not a must but they are pretty cheap. You can keep this if you like. (Otherwise, don't renew when it expires.)

6. Endowment plan, 9 more years. A form of forced savings. Just complete it. (A plain vanilla endowment is less problematic than an ILP.)

Before terminating any of your life insurance policies, get covered with term life insurance of equivalent level of protection first.







We should increase our income if we can but we must be sure that in the event our income suffers a dip or disappears, we are able to cope.

We want to be especially careful with any long term financial commitment that takes up a significant percentage of our regular income.

Making sure that these long term financial commitments are absolutely necessary will help to avoid weakening our financial health too much.






This family can bring down their expenses rather significantly and strengthen their balance sheet by not overpaying for insurance and to buy only what they need.

Related posts:
1. Critical illness insurance.
2. Disability insurance.
3. Term life insurance.

Without CI coverage, could we become a burden?

If we have a good H&S policy, why do we still have to get coverage against critical illnesses (CI)?

Well, if we should die quite quickly from these critical illnesses, then, that is the end of story for us.

What if we did not die and were left weakened? What if we were unable to work or if we should wish to seek alternative treatment? Could we become a burden to our family?

Having said this, depending on our circumstances, we might not need CI coverage for life. OK, some might still want it but that is something else.





Here is a recent conversation with a reader:

Reader:
My insurance agent told me he has max up his critical illness (CI) coverage in his whole life policy as he claimed we need money to cover sickness after 70 years old...

I told him hopefully I will be managing my finance so well that I should have at least 300K by then :) and shall I detect with sickness and I may just managed to stay for another 10 years.

Do you mind to develop a bit why you persuade your father to give up his whole life ? Don't you worry they may need the money if they are sick, especially during the golden year?

AK:
We buy insurance because we need to transfer risk. At 70, what kind of risk should my dad be transferring?

My dad has Medishield which will be upgraded to Medishield Life by end of the year, hopefully. So, he has H&S coverage and, really, that is all he needs.

In retirement, we should have developed some form of retirement funding so that we have regular income without having to work.

If we still needed CI coverage at 70 or older, I can only assume that it would be because we could not afford to stop working and still needed an earned income. That is depressing.






Buy what we need and not what the insurance agent wants us to buy.

Related posts:
1. Getting covered against critical illnesses.
2. Retiring before 60 is not a dream.
3. Consider terminating whole life insurance.

AK talks to an expert on Investment Linked Policies, ILPs.

I was offered a chance to do a sponsored blog post on ILPs and instead of just the same old newsletter style or a cookie cutter interview, I decided to do it like a talk show.

So, we have AK, the host of the show, and a guest who is an expert in the industry taking questions from callers (who are actually my blog's readers). The questions were put forward by readers on my FB wall recently, in case you are wondering.

Anyway, here goes:

AK: Welcome to the "Accredited Kay Poh Also Can Show". I am AK, an accredited kay poh and your host for the show. With me today is Mr. Brendan Yong who will be doing all the work answering questions related to Investment Linked Policies or ILPs. Welcome to the show, Brendan, and let us start by asking you what are ILPs and how are they different from regular whole life policies, for example?

BY: In the case of regular whole life policies, your premiums (less commissions) for regular whole life (we call participating plans) along with others are collected into a "Life Fund", and the insurer is responsible to invest the premiums wisely,  to produce a return which is shared with the policy holder. Claims are paid out of this common pool in addition to other expenses.

For ILPs, your premium (less commissions, sales charges) buys into unit trusts (therefore the responsibility of investing lies with you). Periodically, insurance charges are deducted to provide the coverage stipulated by your insurance contract, other charges include: policy fees and management fees. Insurance charges rise with age. 

In other words, whole life policy returns are outsourced to the insurer. Insurance claims are deducted from common pool of invested funds.

ILPs investment returns and risk are borne by the consumer. ILP imposes insurance charges, which are deducted by selling units. Claims are paid by insurance company from another pool of Life Fund for ILPs and Term.

AK: Thanks for that clear explanation. Recently, when I asked my readers on FB what would they like to know regarding ILPs, I received a long list of questions. So, we would like to pick your brains here. Allen Allen asks "Is it advisable to take on ILP? I am currently having a ILP for 7 years and am considering to surrender it as I don't see it breaking even anytime soon." What would you say to that, Brendan?

BY: The main issue is ILPs are not suitable after age 55, as insurance costs increase exponentially. So if it was implemented thinking it covers life time for death, and critical illness, it is potentially a time bomb. If it's implemented for investment returns, you may be disappointed with the returns due to the high charges and fees. Every situation is unique, we have to compare the option of surrendering vs buy term invest the difference to give a proper recommendation.

AK: Sounds like Allen Allen might have to get in touch with his financial adviser after the show. Next, Spencer would like to know "What will happen once the mortality rate / cost of insuring is higher than investment returns?"

BY: The insurance charges are to be deducted from units by selling them. Imagine you are paying $3,000, after paying 5% charges, the remaining $2,850 is invested into funds. But your insurance charges at age 70 is say $8,000. Then you have to sell $8,000 worth of units to pay for the charges. Provided you have enough units to deduct, you coverage continues, while the accumulated fund depletes. If it depletes to zero, your cover is terminated.

Some agents say the returns will pay for the charges, but seriously, at the older age, you'll have to reduce the risk of the portfolio, settling for a lower return. So there is a high chance that it will start to deplete despite returns, due to the rising insurance charges. The effect will hit you after 55 ...

AK: That is quite a revelation! Older viewers/readers might want to take note! Next, Thomas asks "have u bought an ILP for yourself? If yes, is it a big portion (%) of your investment portfolio? And would u strongly recommend it to your spouse, and also to your parents? If so, did they buy it and what's their objections if they didn't."

BY: No ILPs for me. Not for my spouse, definitely not for parents (anyone above 50 is literally a mis-sell). Buy term invest the rest instead of ILP.

In my ebook, I mention only 2 situations it may still have some merit:

1) Newborn baby or very young kid. The long term plan is to cash in before age 55, making use of lower insurance charges when young.

2) Young working adult with little or no fiscal discipline. Same long term plan.

AK: Some very clear guidelines there as to when ILPs might make sense. Now, Gabriel wonders "if there are any ILPs which have beaten the STI index returns? Or has any ILP beaten the highest unit trust returns?"

BY: ILPs refers to the policy not the fund. So I would suppose the reader means the ILP fund. ILP funds are the same thing as Unit Trusts. There is also no sense talking about ILP funds beating Highest UT returns, as they maybe from different sectors, regions or asset type. There is no sense comparing any fund to STI, if the fund is not bench-marked against STI. A China/India ILP beating STI returns says nothing for the fund.

So allow me to re-phrase the question. Is there any difference between ILP funds and Unit Trusts? Has ILP funds beaten their index?

ILP funds are essentially unit trusts that are subscribed into by insurance policy holders. One advantage of ILP funds is the large pool of "dollar-cost-average" policy holders that will buy into the fund regularly, through good and bad time. This may explain some out-performance vs similar UTs. Let's take for example STI benchmarked funds:

NTUC Singapore equity invests 60%+ into STREETTRACKS STRAITS TIMES INDEX FUND, and manages the remaining portion. See that they just slightly outperformed STI (mainly due to reinvested dividends). Some attribution perhaps to Dollar-Cost-Averaging. 

AXA Fortress A Fund has consistently outperformed STI in fact by a large margin. Some impact may be due to dollar cost averaging, but most of it because of the capable fund manager: First State Investments Singapore. 

Finally Aberdeen Singapore is a pure UT. So AXA ILP outperformed, but NTUC ILP underperformed pure UT. 

Conclusion: Some UTs beat their benchmark, many don't. Some ILPs beat similar UTs with same benchmarks, some don't. At the end of the day, the choice of the fund can make a big difference. The short-coming is that ILPs may be sold and left alone, disregarding crisis or opportunities. It's the same issue with buy and holding UTs. This doesn't work. Even UTs that beat benchmarks need to be monitored for fund manager movement, and market cycles. 

I have many research on this area... working on another ebook... akan datang.

AK: Another e-book? I am sure you will be keeping me in the loop. Next, Lee Jiahui is "interested to know the market players income/revenue distribution/proportion of ILP products vs the traditional products".

BY: Unfortunately, there is no public data about this.

AK: OK, that was a fast one. Next person on the line is Derek Lim and he asks "What is your timeframe in holding a ILP? Is there a maximum age where you would advise against buying a ILP? Do you cutloss or do a fund switch if your ILP is doing badly? Similarly if your funds has done well, how do u lock in your gains? How do u balance between investment and coverage e.g. should I strive for minimum coverage and maximum investment?"

BY: Insurance charges rise exponentially after 55. So my time-frame is to cut at 55 if I'm holding to one (provided you have adequate cover from other policies). Anything above 50 is mis-selling. Any starts of regular premium ILP above age 40 is not cost-effective.

Cut-loss have to benchmark with buy term invest the rest to decide. In general most comparison will lead to the conclusion that BTIR is better. No manner of fund switching will solve the rising insurance charges problem.

AK: "Similarly if your funds has done well, how do u lock in your gains?" 

BY: Same with UTs, if some funds have "done well", you can choose to switch into bonds to lock it in. However you give up any potential upside. You can also switch into funds that have been beaten down severely, and buy them at a low price. This is one of the strategies that I teach investors who have little time to manage their UTs.

How do u balance between investment and coverage e.g. should I strive for minimum coverage and maximum investment?"

If ever I'm forced into an ILP, I will go for Maximum cover, min investment, and terminate before 55. If you are going for investment, forget about ILPs with "some" insurance coverage.

AK: So, I repeat, go for maximum cover, minimum investment and terminate before turning 55. Derek, I hope you are taking down notes. Next, Talen Blackburn Terence asks whether "ILPs are better than buying shares directly? Which are the better ILPs? What percentage of our salary should we invest in ILP? what % of our portfolio should be in ILP?"

BY: ILPs and UTs cannot be compared with direct shares. Totally different issue. To invest in shares, you will need: (1) some time, (2) a reliable method (e.g. Value Investing, GAARP, etc) (3) that works for your psychology (4) and accumulate experience over at least one complete cycle beating the STI index. If stocks work for you, stay with stocks. The only reason why some stock investors work with us, is to access bond funds. If you are not a good stock investor, you can consider UTs.

ILPs are same as UTs. So I rephrase the question: Which are better UTs? Answer: Whatever that's going to make good money for you in the next 5 years. If I had a crystal ball, I'll let you know.

What am I saying? "THERE IS NO SUCH THING AS THE BEST OR BETTER UT or ILP". You need a strategy to make some money in UTs. 

What percentage of our salary should we invest in ILP? what % of our portfolio should be in ILP?

None preferably, if he's talking about  ILPs.

AK: Brendan, if you manage to get a crystal ball that works, let me know. I only have a bowling ball and it is not very cooperative most of the time. Here is another question from Gabriel, "why are ILP costs so high while the returns are non-guaranteed? Are there any upsides at all for holders of ILP?"

BY: There is no why... That's how they are structured. The only remote upside I see compared to BTIR, is that term has a specific expiry date, ILP doesn't. Example you have a term cover till age 65 thinking you'll not need it when children are all grown up. If you had an ILP instead for the same cover, you can CHOOSE to continue beyond 65. Say you already have an early stage of Cancer, before 65. It might be a good idea to continue coverage ...

Having said that, if you design your insurance portfolio well, you should have some other option to fall back on like a 99-year Critical Illness cover or a Living-type Policy.

AK: That is a good point on how ILPs might be a positive for certain people. OK, The next one is a biggy or several biggies from long time reader, Jimmy Ng. Buckle up or you might fall off your seat. Here comes the first question, "Why are distribution cost & expenses so high that it take a very long time (i.e. over a decade), on projections of guaranteed & non guaranteed, to break even, let alone generate positive returns?"

BY: There is no why... That's how they are structured. Insurers have costs. They calculate that this is how they can still make some profit after giving out commissions.

Instead of asking why, just compare the alternative and make a decision.

(1) Can I afford not to be insured? If Yes, at least have a good hospitalization plan. If you cannot afford not to be insured, but you still don't want any: eat healthily, exercise, hope you don't have bad genes and pray.

(2) If you want to insure adequately, use a competitive term insurance to cover Family Dependency Needs, and a Living or 99-year term to cover Critical Illness. Compare this option with ILP if you must.

AK: Is there any low expense version of ILP ?

BY: Not significantly. Even the cheapest may not compare well with BTIR. Between insurers, ILPs can differ A LOT!

This was from The Straits Times:

AK: How does the insurer split shared costs - like overheads - between the policyholders' and the shareholders' funds? How can a policyholder know if the split is fair?

BY: You might want to visit this site: http://www.moneysense.gov.sg/understanding-financial-products/insurance/types-of-insurance/life-insurance/types-of-life-insurance/participating-policies.aspx

Shareholders can only take a maximum $1 for every $9 distributed to policy-holders, this is regulated.

Other than that it's totally insurer's discretion. It's a free market. If their product is not competitive, they can't get market share.

You have a choice. So, explore the alternatives.

AK: In the Singapore context, can the ILP gives similar or better returns than CPF OA & SA ?

BY: ILPs = UTs. Yes, if the market allows. Yes, it you hang on to it for 20 years. Yes, if you employ a good strategy. No if you choose the wrong fund. No if you are expecting it to do wonders within 3-5 years.

AK: Will it be street smarter to buy a term policy getting the same mortality coverage of ILP and invest the rest into ETF or REITs or AK Investment fund (Jimmy's words, not mine)? My feel is that the returns from these investment could generously help to pay for the term insurance cost, do you agree ?

BY: Yes, generally speaking. Still... shop around. Term insurance rates can differ by 20%.

AK: What determines the Premium Allocation, Insurance Charges, Policy Fee & Funds Bid-Offer Spread ? Are these charges fair to policy holders or could be significantly reduced ?

BY:  Let's not visit the fair issue again... The market will drive charges. One insurer cuts Bid-Offer spread or Premium allocation and comes up with a super competitive product, the rest will have to change soon. The Law of Economics will take care of excessive profits.

AK: What can be done to reduce the premiums & expense payable while increasing the coverage and ROI ?

BY: Nothing. Make a decision: (1) Cut-loss, replace with BTIR or (2) decide to hold and surrender before 55. Increasing Coverage and ROI cannot happen at the same time. It's either one of the other.

AK: Brendan, you have answered all of Jimmy's questions but we are not quite done yet. Just a few more questions from other readers to go. Elvin wants to know "If I suck at money management and am not savvy.. Is the ILP the right product for me? Does the ILP give me a peace of mind in terms of financial protection and is my capital guaranteed while receiving coverage? Are there embedded risks in ILPs?"

BY: If you suck at money management, go and learn. No one will be more responsible about it than you. If you REALLY cannot manage, and have poor fiscal discipline, then maybe you'll be better with ILP off than nothing at all. Risk are the market risks, capital non-guaranteed. If you want some guarantee, buy 99-term or a traditional living plan.

AK: Next, Kenji asks "how do u make money from ilp when u r in a losing position now?and is switching fund the only way?"

BY: If you are talking about a Single Premium ILP, meaning it's not a monthly or yearly premium plan, then SELL the ILP, buy an equivalent UT or in a potentially better one. You'll recover it faster because of the ILP charges.

AK: Jieren Azrael Zheng wants to know if it makes more sense to buy a similar or underlying ETF instead of an ILP?

BY: I think we are talking about single premium again. Yes, UT or ETF is better than ILP.

AK: Clement Wong wants your opinion on his 3 year old ILP. "i bought an ILP 3 years ago without knowing any better. how now brown cow..."

BY: Evaluate vs BTIR. Make a decision. Consult a proper financial planner before doing anything.

AK: Zaw Oo asks "Given your current knowledge, would you encourage anyone to take up ILP as a form of long term investment?"

BY: flat NO.

AK: Very emphatic! GW Samzel says "I own both Golden Regional China Funds and India Equity Fund from Manulife and it seems like my current buy price is always higher than it's sell price (selling a fixed amount monthly as charges for the policy). Even though the chart is slowly going up (it's only been 4 yr since I got the funds), high buy price is forever higher than sell price. Would i really make any gain eventually? Also, how do I evaluate that these 2 recommended funds by my financial planner is really the most suitable fund she could offer for me?"

BY: Buy is always higher than sell due to bid-offer spread of around 4-5%.

How to evaluate a unit trust ... (perhaps that's the title of my next ebook) ...

Step 1: Go to https://www.dollardex.com/SG/?current=investUTgraph/home&previous=investUTgraph/home

Unselect show funds only sold at DollarDEX, so that you can see all funds (even so some are not listed on DollarDex)

Step 2: Click and Select funds to compare:

Step 3: Decide: cut ILP, buy equivalent UT or something else

How to determine if you insurance agent or financial planner is competent to advise you on investing UTs:

1) Did they make their wealth (significantly) with UTs?

2) Have they gone through one full economic cycle?

3) Can they answer questions convincingly about markets, fund characteristics etc?

4) What is their strategy and rationale of fund selection?

5) Do they only look at performance ? And only last 3-4 years? 

6) Did they show you how bad it can get? The downside?

AK: Brendan, I really like these 6 questions that you have listed. Very telling! I want to thank you for patiently answering all our questions and, to all my readers, if you would like to have a copy of Brendan's e-book, go to: https://ut200.isrefer.com/go/ILPTB/sgstock/

Remember, nobody cares more about our money than we do. So, take charge and ask questions. Make sure we understand what we are getting ourselves into each and every time. If we don't understand something, walk away. Don't commit.

With that, the show has come to an end.

Important things to do before we start investing.

It might come as a surprise to some but it is very common for me to see people who are very excited about starting their journeys as investors and neglecting matters of personal finance. Of course, regular readers would know that I always tell people that they must get their personal finances in order before thinking about investing in the stock market.

So, the question is whether we have overlooked essentials in financial planning in our haste to invest? What could possibly be the most overlooked area of financial planning? Not surprisingly, it is the area of insurance. Insurance is an expense that many would like to dispense with but we really shouldn't.

Many people are attracted by the high returns investments could potentially provide but fail to understand enough what it takes to become an investor. Many jump into the sea of investments and end up drowning. Fear strikes me when my peers get overly excited about “investment opportunities” or when they are too eager to begin investing before taking care of the essentials.

As with everything in life, we should prioritise and take care of what are most important first:

Debts - In our financial plans, we know that we first have to take care of our debts. (Do you know that many Credit Cards effective interest rate is at 24.9% per annum now?) It would not be logical for us to invest before clearing these debts, loans and cash lines with high interest rates that we might have. How could we achieve 24.9% investment returns per annum?

Emergency Savings - Emergency savings of at least 6 months of our monthly expenses is recommended. This is important in case of a stoppage of our income which could happen, for example, in a retrenchment. Emergency savings is also critical to cover unexpected expenses such as medical expenses for our loved ones, household, vehicle repairs and other unfortunate events.

Essential Expenses - If we expect some essential expenses to come our way such as hosting a wedding banquet, having our home renovated or planning to have a child, then, we should save up for these expenses. These are all expenses which could end up being five figure sums. This is money we should not invest with because it is money we cannot afford to lose. We do not want to have to liquidate our investments at a time and price not of our own choosing.

Insurance - We must get sufficient insurance coverage where it matters. Bad things do sometimes happen in life and we should not think that bad things happen only to other people. Without proper insurance coverage, we could see plans for retirement adequacy or financial independence derailed.

Examples of Financial Risks

Medical bills:  How would we deal with hefty medical bills if we did not have sufficient savings?

Loss of income due to medical crisis or death: If we should die or be disabled due to some illness, who is going to provide for our dependents?

These are all real issues which have to be dealt with. The good news is that it is possible for us to be adequately insured at a low cost if we purchase the right insurance products.

If you are wondering what kind of coverage and what type of insurance you should be buying, have a look at the following table:

Seems like there are many types of insurance we have to buy. Does it have to cost an arm and a leg? No, it is possible for a person aged 35 years old to be adequately insured for as little as S$200+ a month.

Where & How to Plan for Insurance?

You could easily calculate your insurance needs:
Click here to find out your life insurance needs
and
Click here to find out your critical illness needs.

To compare and purchase insurance, DIYInsurance –Singapore’s First Life Insurance Comparison Web Portal by Providend Ltd aggregates products from various insurance companies and provides 30% commission rebates in addition to ongoing promotions.

Staff from DIYInsurance are all paid a fixed salary and do not participate in sales-based compensation or incentives of any kind. Not being remunerated on a commission-basis means they are independent and there is no hard-selling and over-selling.

If you require any advice on your insurance needs, do contact them and seek their expertise. Visit www.diyinsurance.com.sg and request a quote for what you require.

Have you planned for the above must-dos?

If you have not, please do so as soon as you can. We do not want to risk having our savings and investment gains wiped out due to our carelessness when it comes to personal finance matters. We have to protect our assets and also plan ahead for any unexpected events.

It probably pays to be patient before diving into the stock markets. We will not only be doing ourselves a favour but a very important favour for our loved ones as well.

The is a sponsored blog post by the good people at DIYInsurance.

Related post:
6 questions to ask about your insurance.

52 year old lost $200K and unsure about next 30 years.

hi AK, need your advice.

I am a 52 years old single person, still working but hoping to quit from my stressful job and pursue own interest.  

Have come across your postings just recently - how i wish i had done that much early.  

My investment decisions over the past 10-15 years were really bad and lost $200k+ in stock and commodity markets.

Current financial situation:

- 5 room hdb flat (fully paid) with 2 rooms rented out. Got maid to take care of the flat, tenants and me

- mini condo (570 sqft - $660k) above MRT station and mall TOP later this year, w outstanding loan $400k @1.5%+ p.a. (another bad decision?  haiz)

- Cash at bank $580k, Investment $280k, CPF OA $150k, CPF SA $190k

Insurance:

1 whole life and 2 critical illness policies sum assured of $50k each running since 1980's (total annual premium $3.6k for all the 3 policies)

1 term life $250k until age 65

1 Enhanced Incomeshield (advantage)

1 Aviva MyCare (Supplement ElderShield) Premium $1.2k/yr with payout of $2k/month for live if anything happens

1 Home insurance $80k

Very unsure what i should do at this crossroad in life to at least get some stable/passive income to sustain myself for the next 30 years maybe?

- sell or rent out the mini condo? not sure what price it could fetch if sell?  If don't sell, should i try to pay up the full loan asap? 

- what type of investments i should go into, thinking of ETFs and REITS, but which ones and when to enter?

Would really appreciate if you could throw some ideas..

Many thanks. 

AK says...

I will make a few general remarks here and you see if they are helpful to you:

1. You must find out how much money you need on a monthly basis in retirement and whether your current passive income level is sufficient. 

If it is sufficient, you can basically quit your stressful job and retire now to pursue other interests.

2. If passive income level is insufficient, are there ways to reduce expenses and liabilities? 

Are there ways to improve passive income level?





3. Shoebox condominium. 

I don't know if it is a good decision or a bad one. 

If this is able to generate positive cash flow for you, keep. 

Otherwise, you might want to consider selling it.

4. Insurance.

- Since you have had the Whole Life policy for donkey years, you might want to keep it till age 65 before surrendering. Treat it like a bond. 

However, you could consider terminating it if you do not have dependents. This will improve cash flow.

- Keep the CI policies. You need these.

- Keep the Term Life unless you have no dependents.

5. Investments. 

I won't tell you which ETFs and REITs to invest in. 

Do a bit more reading and decide for yourself.






- At your age, you might want to simply max out your benefits as a CPF member. 

You are only 3 years from 55 when you will be allowed a lump sum withdrawal from your CPF account. 

Contribute to the Annual Limit allowed.

- You might also want to start a SRS account especially if you are a high income earner. 

The tax savings is very attractive and is money in the pocket. 

The SRS account money will become accessible without penalties at age 62.







The discussion continues in part 2: here.

Related posts:
1. Why plan early for retirement?
2. Buying a property: Value for money.
3. Consider terminating whole life insurance.
4. SRS: A brief analysis.
5. Retirement: Buying AAA rated bond.