Start With A Whole Life Plan And Build Your Insurance Coverage…
My personal preference? Start with a SMALL PORTION OF WHOLFE LIFE COVERAGE.
Then, buy MOSTLY TERM PLANS to cover for your other time specific needs.
I ran a quick poll and this point of view is only the SECOND MOST POPULAR STRATEGY.
This article may be technical. I'd explain why you should have a "small whole life plan and mostly term cover" vs "Buy term and invest the difference" and vs having "some whole life and some term cover".
If you're not familiar with the various insurance plan types, look for articles on TheAstuteParent or speak to a qualified adviser first.
Firstly VS "Buy term and invest the rest"
Term plans, while cheap, require you to define the term period at the point of policy puchase.
Is it for 20years? Till age60? Till age70?
Took a 20y mortgage? Get a 20year term plan!
Got a new baby today? Get term coverage till age60 (at least)!
But there is an issue with "buy term and invest the rest" to be your foundation and only coverage.
The main limitation for term plans is that it fits needs for specific timeframes.
What about unexpected needs?
I know of someone with a new born at age of 54 from a re-marriage.
A BTIR approach done at age 25 may leave you gaps in coverage you couldn't anticipate. Especially for needs in your older years where you are more likely then ever to claim.
The only outcome then is to sell off assets you may have then for a need.
Whole life plans may have been sold wrongly
30years ago, trading shares and unit trust were costly. ETFs were not created yet.
And term plans (without wide adoption) were NOT CHEAP.
Hence, whole life plans were a good product to provide insurance coverage with some degree of wealth accumulation.
But today, any adviser selling whole life plans to meet a wealth accumulation objective may be providing incorrect advice. The rate of return on whole life plans are unlikely to be above 3%pa.
There are many investment tools readily available today that can meet the objective of wealth accumulation.
Whole Life Plan for PERMANENT COVERAGE, NOT for cash value!
14years ago when I joined the industry, I was trained that term plan premiums are "money down the drain" if no claim happened.
Whole life insurance is better for customers. It has cash value.
And it covers till age99 or a life time. Which means CERTAINTY OF CLAIM!
But I'd say, it is the later part that really is unique.
PERMANENT INSURANCE COVERAGE. A "catch-all" backup plan. See it for that benefit. Certainty of claim at whichever age you are.
Because of that, whole life insurance cost is NOT cheap. If is a "catch-all" backup plan, it should not be excessive and only a small part of your coverage.
Build Your Coverage With Multiplier Whole Life Plans
Imagine a skyscraper. In it's foundation are small supporting pillars to let you stack on.
Let a whole life plan be your insurance planning foundation.
If you have a whole life plan provided by your parents that covers for life/TPD/Critical illness, you may be sufficient in that aspect already.
If you do not have, look to build your coverage with a multiplier whole life plan.
These plans are very popular these days because they have permanent insurance coverage and a multiplier effect (2x/3x/4x/5x) designed within.
What is a multiplier effect? It is actually a term coverage designed on top of the permanent insurance coverage that last till age 65 or 70.
In AVIVA, the plan name is AVIVA Mywholelife Plan III
In Manulife, the plan name is Manulife LifeReady
In China Taiping, the plan name is China Taiping I-Secure
Almost every insurer have their version of the Multiplier Whole Life plan. Some call it "Booster" or "Additional Cover". Compare them first before any purchase.
If you've a newborn, also check this article below
Use Term plans to build on TOP of this foundation
Once you have a whole life plan in place, you have your extremes covered.
Next, define your time specific financial obligations.
If you have a mortgage of $1m for 25years, buy the term plan that fits that need specifically. And when you do so, there is no need to muddle permutations with a whole life plan for it.
If you're looking for a plan to cover mortgage liability, check the article below on 4 reasons to cover mortgage liability with us rather than MINDEF Group Term Plan.
Conclusion
Each strategy is a personal perspective and nobody is right. Hopefully, you see the merits with my approach on starting with a small multiplier whole life plan then adding term plan coverage on top when you need it.
Insurance is to cover for the UNEXPECTED. No one is 100% sure of being liability free and fully retired at a forecasted age. This strategy keeps cost low and covers all curve balls that life throws at you.
Leave a Reply