In the last episode, I expressed my view that 1) medical insurance, 2) income protection insurance, 3) long-term care insurance, and 4) emergency funds are essential for each person/family. There are some other things you need to take note of, and here is what I think:
Death/Critical Illness Insurance for Kids
I used to buy life and critical illness insurance for my children too. However after I realise the priority to protect the main income earners of the family, I started to think buying this type of policy for children is not a good idea. You should rather use the money for this insurance premium to buy better food for your children or send them to sports groups, so they can get healthier and stay away from illness.
Whole Life or Term Plan
When buying death and critical illness, you will usually face the question should you buy a whole life plan or a term plan. A whole life plan covers your entire life and also accumulates cash value which can be withdrawn upon your death. Term plan only lasts curtain fixed years and doesn’t have any cash value, it is straightforward pure insurance.
Typically salesperson will recommend a whole-life plan, but actually, a whole-life plan is 10 to 20 times more expensive than a term plan. Don’t buy a whole-life plan as it is too overpriced. Don’t use whole life plan cash value to accumulate wealth either, because that’s not the main purpose of this insurance.
Similarly, don’t ever use investment-linked insurance to accumulate wealth. This type of insurance has an investment fund built in and can generate some return on top of its insurance function. Same to the whole life plan, this type of insurance is very over-priced and charges a high management fee. You should use pure investment (stock/bond investment) to accumulate wealth, and buy pure insurance (term plan). Don’t mix investment and insurance!
Pay Attention to your Insurance Expense
Take a look at all the insurance policies you have and how much premium are you paying per year. You might be surprised! You should only keep those you need and cut those you don’t need.
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