Why you may be overpaying for your life insurances
Updated: Oct 20, 2020
“Sorry, but I’ve already have bought my insurances (x) years ago” or “My parents already bought my insurances when I was young”
I’m sure you’ve heard of it or even said the above phrases before, but do you know that actually, your “old term insurances” or the “whole-life insurances that your parents bought when you were young – that you are now paying” may actually cost you more than the policies available in the market today.
Here the reason why:
For Whole-life insurances that were passed down by your parents
Imagine paying the price of an iPhone for the features of a Nokia phone, that’s essentially what you are doing for the whole-life plans that your parents bought 20-30 years ago
In terms of cost, the reason why its older policies may cost significantly more than newer policies is due to the fact that:
Firstly, the premiums of older whole-life policies are usually payable for a lifetime, whereas modern whole-life policies are payable only for a limited amount of years.
Secondly, the cost per $1,000 insured is in the past may be more expensive as compared to the cost per $1,000 insured today.
As a result, policies today may cost lesser than the policies you bought previously even though the age of entry is higher (disclaimer: depending on your age of entry and market situation!)
Qualitatively, the wordings or definition of older insurance contracts are usually not comparable when compared to newer whole-life policies
Some may argue that older policies payout larger bonuses, and to be fair that is usually true.
However, let me remind you to keep insurance and investment separate. The point of getting insurance is to protect your savings and lifestyle rather than to chase after returns. As such, your main objective, when selecting insurance, should be to acquire the sum-assured needed at the least amount of cost possible.
For Term insurances that you bought years ago
As the insurance market develops, as the industry becomes more competitive, the cost per $1,000 insured may continue to decrease due to competition and improvement in underwriting – especially in the term insurance market
Couple that with the occasional customer campaigns that offer up to 20% perpetual discounts on term insurance policies, with the same sum-assured, the cost of a term life insurance today may even be cheaper than the term insurance you bought 5-10 years ago.
Long story short
It pays – literally – for you to review your insurances on a regular basis.
This is exceptionally important if you are currently paying for insurance policies that were handed down by your parents. All it takes is a simple insurance portfolio restructuring and you will be surprised and how much savings you can achieve. This can come in the form of:
Better coverage at the same price
Same coverage at a lower price
Huge disclaimer though, cost-savings opportunities are heavily subjected to an individual’s situation which includes their existing insurance policies, health condition, and insurability as well as current market offerings and promotions!
So please, do take the time to look at your existing insurances. You’ll never know if you are overpaying for your existing insurance if you don’t compare it with what is currently available today.
To read a case study of how I helped one of my clients saved thousands of dollars in his family’s insurance premium, you can read here.
If you do not have the time to plan for your own insurance portfolio and compare the products among the different insurance companies, you can leverage on my services to help you short cut your insurance planning process.
I look forward to hearing from you soon and stay safe 😊
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Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides advice in the following areas:
for investment and portfolio management advice - find out more here
for insurance planning and portfolio optimization advice – find out more here
for retirement planning advice– find out more here
This article is meant to be the opinion of the author and is for information purposes only.
This article should not be seen as a financial advice
This advertisement has not been reviewed by the Monetary Authority of Singapore