Question: Hi Wilfred,
I'm a 29-year-old single, living with my parents and a younger brother. One of my single friends in her late 30s asked me, why did I buy whole-life policy. I was stumped for a while.
As singles do not have a dependent and I do not foresee myself getting married, do we actually need a whole-life policy, ILP or term policy? I have 2 whole-life policy and 2 ILP.
One of the ILP has a death benefit of $260,000, and my premiums is $1,500 per year. From the BI, after 30 years of paying the premiums, I noticed the effect of deductions is doubled of the non-guaranteed surrender value @ 9% and 5-6 times more than the non-guaranteed surrender value @ 5%. Total premium pay-out at end 30th year is more than the non-guaranteed surrender value @ 5%. My financial advisor said to protect myself in case of death and explained the insurance cost is lower than the 1st ILP I bought. In addition, he said there is more flexibility in ILP.
If it is for protection as what my advisor mentioned, does the premium justify the value that I am getting? Is it normal for effect of deductions to be this high in ILP?
It seems like whole-life policy & ILP are the norm for everyone to take.
Hope to seek your advice and at the same time, perhaps create awareness for other singles when coming to make a decision on financial matters. Because we are our own dependents.
Thank you and look forward to hear from you.
Since you said yourself you have no dependent and still staying with parents, I infer you also do not have significant debts like mortgage. So why are you protecting for “death” if there is no need to? Thus, there is no need to have any insurance covering death.
One of the most important needs of a single person is medical insurance, followed by disability income and critical illness. You yourself said that singles are their own dependents. This is correct. Therefore, in the event when you become disabled or mentally incapacitated, you have no one to look after you. This is unlike a married person who can rely on spouse. Thus, estate planning such as the necessity to draw up a Lasting Power of Attorney is the highest priority for such a case.
Whole life and ILP appear to be the “norm” because the agent needs to earn a living and the only way to earn a significant living is to sell products that generate a decent commission for them. For $1500 annual premium ILP, the commission is roughly $1500 (paid over a few years) in total. It is better that you pay $1500 separately to get objective advice than to commit into a life time of obligation. It does not take a genius to work out the math to determine which is numerically more expensive.
By the way, when you enter into a long-term contract such as a regular premium insurance, your debt ratios increased to your detriment. See Economic reality of your net worth (balance sheet) and Why is an ILP considered inferior/ a time bomb?
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