The 5 Pillars of Life

I again have to emphasize that I’m not comparing a “Buy Term Invest the Difference” Vs “Buy Whole Life Plan” argument. Getting into such arguments will waste me a lot of time where I rather spend to serve my clients and expand my business. Writing this blog is to feed my interest in writing about Financial Planning issues and my opinion of the industry and not to generate businesses or to engage in time wasting arguments. (A mistake that I committed in my old website).

Whole life cover is not for all
In my opinion, it is necessary for some and not necessary for some. Let us look into our basic Medical Insurance needs first.
1) Hospital and Surgical – Urgent and Important
2) Critical Illnesses Coverage (Temporary needs) - Urgent and Important
3) Whole Life CI Coverage (Permanent needs) - Not Urgent but Important
For people who can confidently self-insured their Permanent needs need not get a Whole Life plan.

We must know what our priorities are first. There are many agents or FAs who will try shift priorities of their prospects. They will try to make the temporary needs to become permanent in order to justify a higher WL coverage. I will not say that there is anything wrong with this but provided that the adviser had did a good job by recommending after analysing the propects other Financial needs such as Retirement, Children Education, short/mid/long term goals, investment profile based on experience, willingness, ability, etc and have informed the client fully on their options and client insisted on his recommendation.

I like to share 2 common practices…
1) Diverting Term to Whole Life
Assuming that Mr Lim needs for Critical Illnesses Cover, say is $250,000. Agent X may recommend him a $250k WL plan which can cost him $500/mth. Mr Lim says expensive, Agent X may not immediate talk about the existence of Term insurance. He will continue induce fear to let Mr Lim see the needs. When Mr Lim asked about Term insurance, Agent X may give him following statements:
a) “Don’t you think you have a higher chance of contracting illnesses when you are old?” Why do you want to get a term?
b) “If you get a term plan, what if you contract illnesses at the age where your term plan expires, do you know that you can’t get anything and its too late?”
c) “Term plan is like renting a house, you can’t own it forever and if you your term plan expires at age 65, where will your cover comes from? Where are you going to stay?”
d) “Term plan, you pay and pay and get nothing back. All your money are wasted. Do you know that?”

Ultimately, the agent is trying to divert Mr Lim’s attention towards Whole Life Permanent Coverage. Even till today, a lot of agents will say that they are right on the above 4 analogies and I’m not here to argue.

2) Diverting ILP to Whole Life
Mr Lim have an ILP (regular Premium) at the age of say, 52 and been paying for the past 15 years, some agents may tell him to terminate his ILP and get a whole life plan even at this age.
a) Mr Lim, do you know that your mortality cost will increase when you get older to a point that it is higher than your premium paid. (Then show him a mortality charges at age 65 or 70 to scare him)
b) Mr Lim, if you get a whole life plan, your intention is to keep this policy for life right? If your annual premium is $2,000 and after 15 years, its $30,000 but if you are to contract illnesses at age 75, you will get $80,000, isn’t your yield XX%? What investment gives you this XX% returns? Isn’t it attractive?

Many agents will continue to tell the above to shift their prospect from ILP to WL or even to buy another WL plan. I will not want to engage in any argument with these agents if they are doing their clients a favour.

The “agents” I mentioned above can be an Insurance Agent, Bank RM, IFA, Direct Sales Reps, etc. and can come in any shapes and forms. But one tip to recognise one “Check if they carry a MDRT, COT or TOT” title, there can be a slightly higher chance that they may belongs to the above.