Decreasing term insurance

Hi Mr Tan,

I wanted to buy term insurance, but the insurance agent recommended against it. She said that the term insurance will stop the cover at the end of the term, and I need life insurance beyond that. She recommended that I buy a whole life policy and pay premium for only 20 years. I am confused.

REPLY

I recommend that you buy a decreasing term insurance to stop at age 65. You can insure for 5 to 10 years of your earnings. If you annual earning is $40,000, you can insure $200,000 and pay a premium of about $40 (assuming that you are about 30 years old).

If you save $4,000 a year in a low cost investment fund to earn 5% per annum, you will get about $260,000 at the end of 30 years. This is more than your sum assured of $200,000. If you have this amount of accumulated savings, you do not need life insurance beyond 30 years.

A decreasing term insurance covers you the full sum assured during the first year and reduces the cover each year by a small amount, until it runs out completely at the end of the term. The yearly reduction in the sum assured will be offset by your additional savings in each year.

You can ask an insurance broker to get you the best premium rate for a decreasing term insurance. They can source from a few companies. You can also call the insurance companies directly and ask for their quote.

Just tell them the following: I am a male/female, (x) years old. I want $(y) of decreasing term insurance for (z) years. How much is the annual premium?

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