Better to buy term and invest the difference

Dear Mr Tan,

In December 2002 (@ age 35), I brought a life insurance policy from an insurance company which paid a monthly premium of S$96.50. The benefits are:

- Death or TPD coverage, S$25,000.
- if surrender at age of 65, based on the Benefit Illustration (Nov 2002), will receive a lump sum of approximately S$50,000 (Non Guaranteed).

What are your comments about this policy?

WC

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Dear WC

If you get a return of $50000 at age 65 (after 30 years), you are getting a yield of 2.88%. This is not too bad, but I think that the return from a similar product from NTUC Income should be better. I do not have the figure, but you can ask the business center in NTUC Income to give you a quotation.

You can call them at 6510 2860. See http://www.income.coop/businesscentre/

I prefer to buy a decreasing term assurance and invest the difference in a large, well diversified, low cost fund. You can read about the i-term and ideal plan in www.income.coop/faq.

The cost of the decreasing term should be less than 10% of your premium. If you invest the remaining 90% (ie $1,042 a year), you may be able to get the following amount at the end of 30 years:

Assume an average return of 4% per annum: amount at end of 30 years: $60,700
Assume an average return of 6% per annum: amount at end of 30 years: $87,300

Note: these projections are not guaranteed.

Wish you the best for the Lunar New Year

Tan Kin Lian