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Should I change my insurance portfolio?

Source: The Straits Times, 5 July 2015

Source: The Straits Times, 5 July 2015

“Insurance protection is important as it gives me peace of mind,” said Mr Yeo. “If something happens to me, I know that my family will be well covered.”

As Mr Yeo has a family history of certain medical conditions, he was concerned about covering himself against critical illness as he grew older. His father, a diabetic, died from a heart attack at 71.

Mr Yeo started out with four policies – a whole life plan, two endowment plans and a regular premium, investment-linked insurance policy (ILP) – which amount to a total sum assured of $210,000 and a critical illness cover of $50,000.┬áHis total annual premiums were about $6,000.

REVIEW IN 2008

In 2008, his financial adviser recommended that he boost his critical illness cover to $330,000 by adding two plans – a regular premium ILP and a whole life limited-pay 20-year plan – both of which offer critical illness protection. Mr Yeo also bought private integrated Shield plans for him and his family, which will help cover hospitalisation bills.

Back then, Mr Yeo was aware that he did not need to hold the ILP policy for his lifetime. With an annual premium of $2,400, the plan’s sum assured was $180,000 and it came with a critical illness cover of an equivalent value.

The whole life limited-pay plan, which has a sum assured of $100,000 and a critical illness cover of the same value, has an annual premium of $2,458.

At this point, his total sum assured and critical illness cover was $490,000 and $330,000, and the total annual premiums for his plans were about $11,000.

REVIEW LAST YEAR

Mr Yeo wanted to ensure that his critical illness insurance covers him for life without increasing his premiums significantly.

He decided to restructure his insurance portfolio by surrendering his two ILPs and buying another whole life limited-pay policy. The latter requires premiums payments for 25 years and he enjoys a lifetime protection cover as long as he does not surrender the plan. The whole life plan has a sum assured of $230,000 and a critical illness cover of the same value, coupled with an early care cover which covers critical illnesses at different stages of severity.

After these changes, Mr Yeo’s total death benefit was reduced marginally to $440,000 while his critical illness cover was maintained at $330,000 with an enhanced early care component of $100,000. His premiums amounted to $11,444.

How about yourself? When is the last time do you review your existing policies with your financial planner? Do a comprehensive financial review annually that includes your financial objectives, time horizon, budget and your risk appetite. Do not have the wrong impression that buying just one plan is enough to last you for your lifetime.

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