What are the benefits of a whole life insurance? Why would my baby need life insurance? Which is the best life insurance? Shouldn’t I buy term insurance for my baby since it is the cheapest?
This article will address these questions.
What are the benefits of a whole life insurance?
A whole life plan has the following features:
- The coverage is for life.
- However, the premium (i.e. the amount you need to pay to the insurer) is not whole life. This is known as limited premium. For example, a product that has 20 years limited pay means you only need to pay for 20 years. The coverage is for life.
- Coverage is for death, total & permanent disability (TPD), early critical illness, intermediate critical illness and advanced critical illness. Nobody buys a whole life insurance unless it covers early and intermediate critical illness these days.
- There is also a minimum death benefit (MDB) for certain number of years. Typically the MDB is applied until 65, 70 or 75 years old.
- Any claim for TPD and illnesses ‘accelerate’ the death benefit. That is to say that any claims reduce the death benefit.
Why would my baby need life insurance?
The purpose of insurance is to reduce the potential financial lost if the insured event occurs.
For a new born baby, an integrated shield plan is sufficient to reimburse the financial lost due to hefty hospital medical bills.
However, should the illness requires long-term care, such as kidney dialysis because of failure of both kidneys, you may have to give up your day job to look after your child. The loss of earnings is a financial lost that can be insured with a life insurance covering kidney failure of your child. Note that for whole life insurance that covers early stage kidney failure, it is not necessary for both kidneys to completely fail.
Another area that is often overlooked is if your child requires an organ transplant. It is your moral obligation to reimburse the donor’s medical fees. The Human Organ Transplant Act allows for payments to living donors for reimbursing or defraying the costs or expenses or loss of earnings that may be reasonably incurred as a result of organ donation. This will include costs for:
- Donor’s health checks,
- laboratory tests,
- donation operations,
- donor’s follow-up visits and
- limited indirect costs such as loss of earnings by self-employed or daily-wage workers.
A whole life insurance that has critical illness coverage for your child usually includes a Major Organ transplant as one of the CI definition. Organs that are covered are heart, lung, liver, kidney and pancreas transplant. The payout from such insurance can be used to reimburse and defray the donor's cost as permitted by law.
Still, there could be other reasons why you need extra money.
Consider the case of a 13-year-old boy who was left a completely paralysed after being knocked down by a car in 2011. It was only four years later in 2015 that the high court awarded $1.64m payout to the boy. During these 4 years, his mother quit her job to look after her bedridden son who suffered irreparable brain damage. See $1.64m payout for boy left paralysed by road accident (Straits Times, 24 Oct 2015) . The lawsuit was quite lengthy as both sides appealed. A life insurance with critical illness coverage for the child would likely have made a payout because paralysis is one of the critical illness definitions. Such extra money would have come in handy as there was loss of mother’s earnings and payment for legal fees during these 4 years.
As it can be seen that an insurance that covers critical illness for your child is absolutely important.
Which is the best life insurance for my baby?
Comparing whole life plans in Singapore is a difficult exercise. This is because the comparison has to take into account of:
- The number of years the premium is payable.
- The amount of the Minimum Death Benefit (MDB).
- How long the MDB will last to which age.
- The sum assured and
- Whether the life insurance covers early and intermediate critical illnesses.
In order to compare, I have identified three whole life insurance products from three different insurers that are suitable for new born baby. In order to have a meaningful comparison, I have made all their MDBs to be equal to $400,000. Moreover, I have made all to be 20 years premium period. Below is the comparison table for a new born baby girl:
|Product A||Product B||Product C|
|Min death benefit (MDB)||402500||400002||402500|
|Remarks||Early stage CI claim capped at $150K.|
Intermediate stage CI claim capped at $150K.
MDB drops to $115K + terminal dividend after 65 years old.
|Early stage CI claim capped at $100K.|
Intermediate stage CI claim capped at $150K.
MDB drops to $133.3K +bonus after 65 years old.
|Early stage CI claim capped at $200K
Intermediate stage CI claim capped at $200K.
MDB drops to $115K + bonus after 70 years old.
|Premium||3,059.55 x 20 years||$2,620 annually for 20 years||$2,333.35 x 20 years|
Product C is the best among the three because:
- It is the cheapest.
- Its MDB stretch the longest to 70 years old compared to 65 years for the other two.
- The most important factor is the payout limit for its early and intermediate critical illness at $200,000 respectively. For the other two products, the limit is much lower.
Shouldn’t I buy term insurance for my baby since it is the cheapest?
Using comparefirst.sg, there are only two term insurance products which covers to 70 years old. I am using 70 years old as a benchmark because Product C mentioned above has MDB until 70 years old.
The two term insurance products are from Zurich Life and AXA Life. Both covers death, TPD and Critical Illness (not early and not intermediate critical illness). The cheapest is from Zurich Life which cost $636 per year for 70 years. The total premium over these 70 years is 636 x 70 = $44,520. On the other hand, Product C total premium is 2333.35 x 20 years = $46,667. This form of comparison ignores time value for money. Nevertheless you can have a good idea that the term insurance is not extraordinary cheap consider it does not even have coverage for early and intermediate critical illness.
A whole life insurance that covers early, intermediate and advance stage critical illness is absolutely important for your baby. Do not leave it to chance. If you are keen, you may like to read this:
New Baby Package PROMOTION! (this promotion has ended but you can consider another promotion: For young children: Multiple Early, Intermediate and Severe Stage Critical Illness Package.)
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