I consulted an independent insurance broker, ok, maybe not really really independent, but I tried my best to source for an independent broker and I found one (yes, after four months). Some criteria I had was the person must be rich and contented to not want to take advantage for me. The person does not try to sell me products that I don't need. This made my search very hard because it meant that I need to look for the person, instead of the usual salesman/salesgirl trying to grab you while you are shopping. I willingly heard sales talks from Manulife and Great Eastern, but none met my requirements. Google for independent financial advisory services, that was where I got some leads.
The broker shared that in the market, only Prudential and Great Eastern protect their agents and do not allow brokers to sell. All others, including the (rather expensive) AIA, are available through brokers. According to the broker I spoke to, the brokers' commission is lower than the agents who represent the company, because brokers have no vested interest. This met my criteria that the person is likely to offer me the most value for money deal in the market to convince me that it's good and cheap so that they can close the deal.
Just to recap, my Investment Linked Policy (ILP) had $100,000 death benefit, critical illness, early critical illness cover each. I also had riders: $50,000 accident, $1,000 medical reimbursement, $10,000 female illness, and premium waivers. The yearly premium is $3,317.
What I will do in four months' time after my new policies are in-force, is to minimise the ILP insurance coverage to just $80,000 death benefit and make it an investment policy. My revised yearly premium will be $2,699 (-$618). That translates to a saving of $18,540 over 30 years. That lean and mean investment policy can then give me potential returns that I had earlier calculated in Part 1:
Assuming I live a long life until 95 years old, exceeding the average life expectancy of 85, at a 3% yield, I could also surrender the policy after 13 years to break-even.
Now I share a little about my cost comparison. Based on mortality charges listed in the ILP, the total premium cost is $197,000 over 30 years, versus term insurance premium of $57,000 (30% of the ILP premium) over 30 years for the following coverage:
- $1M death benefit (30 years)
- $300,000 critical illness benefit (30 years)
- $100,000 early critical illness benefit (term 20 years)
I was contemplating whether I should also terminate my more expensive 20 year Term Life policy ($500,000 benefit) for a cheaper equivalent to save $440/year. The savings would be depending on how much coverage I want to have too. I decided to retain it. I was also deciding between 20 and 30 year terms. I decided on 30 years for coverage up to 65 years old, which will be the retirement age in a decade or so. Critical illness cover also does not really make sense beyond 65 years old in an ILP. I think I will feel a bit "naked" if my term plans all end at 55 years old and I am still working. Another morbid thought was that the chances of falling sick between 55 and 65 years old is also higher than 35 to 55 years old, so I should extend my coverage to the maximum possible. Getting struck with critical illness at 60 years old will be a terrible experience if all my term plans had terminated and I would have felt that I wasted tens of thousands of premiums. If I get struck with critical illness at 70 years old, I will probably tell myself that I am too old and expensive to be insured.
A ball park figure of a $1M death benefit is cheaper than a $500,000 death benefit on a per dollar basis. Although I contemplated a long time whether I will need $1M death benefit, As $1M will be $500,000 after 30 years of inflation, I thought that it was a reasonable sum. I also decided to retain the 20 year term life policy for $500,000 death and accelerated total permanent disability (TPD) benefit, mainly because I had money to spare and my life is probably worth more than $1.5M at the moment, in terms of opportunity cost. The financial adviser introduced me to a concept of projected net worth at retirement age of 65 years old if I continue my earning, saving, spending and investing habits. At 65 years old, I will supposedly be valued at $2.4M and have more than enough money to retire.
Next was how much coverage I will need for critical illness and early critical illness. I decided on $300,000 for critical illness and $100,000 for early critical illness. The total cost is at least an additional $2,088/year and $1,472/year after 20 years. I decided to ditch the accident insurance. [Edit: premium amount updated on 1/8/2015]
New policies that I will buy at a cost $2,088.
- $1M death benefit (30 years, up till 64)
- $500,000 TPD benefit (accelerated, meaning consumes from the death benefit) (30 years)
- $300,000 critical illness benefit (30 years)
- $100,000 early critical illness benefit (term 20 years)
Existing policies that I will keep at a cost $3,139.
- $80,000 death benefit + investment component (whole life)
- $500,000 death benefit (20 years, up till 54)
- $500,000 TPD benefit (accelerated) (20 years)
I will be dropping the riders that costs $618/year. Total cost will be $5,227/year now, which is within my current annual dividend income from equities, so I feel that I do not need any income replacement insurance now.
Private shield plan is now $700/year (but increases with age) for 100% private hospital single-bed ward coverage. This will gradually increase to ~$4,000/year at 65 years old and increase by $400/year every year to ~$13,000 at 85 years old. I did a comparison between term plans terminating at 65 and 75 years old. The total cost is double for the last 10 years. I would rather force myself to exercise and eat healthy instead. Therefore, I had decided to stop all the term plans by 65 years old, which is the expected retirement age.
Private shield plan is now $700/year (but increases with age) for 100% private hospital single-bed ward coverage. This will gradually increase to ~$4,000/year at 65 years old and increase by $400/year every year to ~$13,000 at 85 years old. I did a comparison between term plans terminating at 65 and 75 years old. The total cost is double for the last 10 years. I would rather force myself to exercise and eat healthy instead. Therefore, I had decided to stop all the term plans by 65 years old, which is the expected retirement age.
[Edited on 1/8/2015 with revised term plan cost.]
