19 May 2017

Paying $1 a Day to Reap Half a Million

My son has started his National Service (NS). As he charts his journey serving that nation, progressing from boyz-to-man, it's perhaps also timely to set him on the journey to manage his personal finances.

As a national serviceman, he is entitled to sign up for the MHA/MINDEF group insurance scheme with Aviva. It is really a steal. $500,000 term insurance coverage (inclusive disability benefits) is only ~$20 per month. Enrolling onto it was easy as he doesn't even need to do the extra work of medical check ups given his NS status. We added on another $100,000 of personal accident insurance, so there's some added cost for his coverage. Renewal seems to be annual. In fact, it seems like his spouse and children can sign on to the same plan too in the future.

I did something similar for my daughter, signing her up with AIA for $505,000 term insurance and total permanent disability, plus $150,000 critical illness. Works out to under $480 a year for a 30-year term. That will cover her till age 47. Don't ask me why the odd $5,000, but it was quoted as such. It was pretty hustle free too.

I made it clear to both of them that this term insurance will not benefit them directly. After all, the only returns to be collected is upon morbidity! Rather, it is to protect their 'dependents'. In the near term, that will be us, the parents. In the longer term, their own families when they are married. And if nothing is ever collected, it's a good thing!

The whole point of term insurance is to replace the lost income when one dies too early, and family members are dependent on you. So it suffices to cover till one reaches financial independence. Obviously, as one builds up his/her own investment portfolios, the amount of term insurance coverage needed decreases over time. So it probably makes sense to have multiple term insurance policies, each ending at different ages. Effectively, "reducing the coverage over time".

I figure that they may want to add on another $300,000 or more when they are older, and to have term coverage that will span them till their estimated retirement age. I don't know when that will be for them, perhaps 55, 62, 65? Who knows. I shall leave that to them to figure out when they are older. The term insurance is therefore to cover the gap till it can be met or surpassed by an investment portfolio to provide the desired income for the dependents.

But for now, they can be assured that they are duly covered for $0.5m each.

Next, time to terminate their existing whole life and investment-linked policies, and free up the cash to put to better use!

2 comments:

Unknown said...

Sorry. I kept reading the word hustle in your blog. Shd be hassle instead?

Lizardo said...

Ooh. You've just expanded my vocabulary. Thanks!