I am a strong advocate of Buy Term Invest the Rest (BTIR). Insurance coverage in my opinion, should be bought to cover the unexpected negative events that happen in life. This may include unforeseen death, illnesses or injuries. Savings and investment should take a separate track.
|Hospitalisation||Aviva MyShield Plan 1 + MyHealth Plus Option A||$76.00*||Annual for lifetime|
Private Hospital Standard room, cover co-insurance only
|Critical Illness||Aviva My MultiPay Critical Illness Plan III||$752.00||Annual till 75|
Sum Assured $100,000
|Accident||Sompo PA Junior Bunny||$85.60*||Annual till 21/25|
LPP 10 years / 20 year plan
*Premiums are subjected to annual revisions
Is the insurance coverage sufficient for her? Well probably yes, at this current stage in life. The essentials are pretty much coverage until we review it again down the road.
Some people advocates purchasing Whole Life or even Term Life policies for their children now because it is cheap. First things first, coverage for death should be targeted towards liabilities that arises from the early dismiss of one. This may include outstanding housing loans, dependents such as young age school children or non-working homemakers. No matter how cheap the policy is, rationally, children do not need coverage for death as they have no dependents or liabilities.
You may observe that as a firm believer of BTIR, is it not contradictory having an Endownment plan? The Endownment plan is contributed by my wife who is not an avid investor but still wants to provide something to our child when she turns 21. The premiums paid after 10 years is $40,739. The guaranteed portion is $49,500 while the non-guaranteed portion is $8.377, calculated at 3.25% investment return.
To put into perspective the returns from the above mentioned Endownment plan:
|Premiums||Guaranteed||Non-guaranteed||Total||Annualised interest rate|
|$40,739||$49,500||$8,377 (written in policy)||$57,877||2.10% p.a.|
|$40,739||$49,500||$4,189 (if 50% of NG is met)||$53,689||1.59% p.a.|
|$40,739||$49,500||$0 (if 0% of NG is met)||$49,500||1.08% p.a.|
I would conservatively estimate that at least 50% of the non-guaranteed portion is possible to be obtained. This translates to roughly 1.59% annualised interest rate over 20 years. Not the very best when you look at annualised returns instead of absolute numbers, however we will keep to this plan as her way of committing to forced savings for our child.
With the above data, this further reinforce why I would personally avoid Endownment and Whole Life policies for their returns.