Embracing life while thinking about death

PHOTO: Embracing life while thinking about death

SINGAPORE - A few months ago, a good friend of ours went to work, suffered a heart attack around mid-day and died within the hour.

He was 30. The tragic news from England, where he lived, shocked my husband and me as it was only a year ago that we spent many summer days enjoying great conversation over beers.

His death was followed closely by another - my husband's godfather, a BBC Radio Devon presenter in his 60s, who succumbed to cancer after a year-long battle.

As we mourned the loss of these men, I spent much time pondering the fragility of life. That was when I began to realise how my family was acutely vulnerable to such curveballs that life chucks at you.

I have a couple of life policies that will pay out $200,000 if anything should happen to me. My husband has none. So if anything happened to either of us, the surviving one would have to worry about paying a 20-year mortgage, sustaining a business and raising a child barely a year old. The sobering thought made me act.

In my last column, I wrote on the insurance policies parents can buy for their children. In reality, insuring your own life is more important since you have to ensure that you can provide for your kids until they reach financial independence.

Term insurance is an obvious choice. It is a type of life insurance policy that provides coverage for a fixed period of time, to be determined at the outset. Such insurance, which covers death and total permanent disability, is typically cheaper than permanent life insurance and has no cash value.

In order to cover our home loan and leave some extra cash, my husband and I are considering getting term insurance of $1 million for a period until we are aged 65 - by which time our children will be financially independent and our financial liabilities much reduced.

Going by some of the best rates in the market, this will cost slightly above $100 a month for me for the entire period and double that amount for my husband. It includes coverage of $300,000 for certain critical illnesses.

Over the whole term, I will be paying close to $50,000 and my husband almost $80,000, which is small compared to $1 million - but the flip side is it will come to nothing if we are healthy beyond 65. What we are paying for is peace of mind that the family is taken care of if the unimaginable happens.

What are some alternatives?

There are limited pay plans, which I also wrote about in my last column.

The insured pays premiums for a fixed period, say 20 years, and is covered for life. Such policies, however, are pricier.

For example, to get $300,000 coverage for death and total permanent disability and critical illness, I am looking to pay almost $300 a month for 20 years.

The advantage is I will continue to be covered for life beyond the 20 years, and the policy has a cash value which I can claim if I needed the money.

The big consideration here is whether I can afford this hefty premium.

For my husband, because of his age, his premium for a similar insurance would be a staggering $520 per month for the next 20 years.

What about investment-linked policies (ILP)?

Such policies are attractive because of the relatively cheap premiums for a certain level of coverage. The policies also offer investment returns.

One reader wrote to me last week saying she had bought ILPs for herself and her husband more than 10 years ago when they were in their 20s and 30s, lured by the promise of investment returns.

In the face of rising mortality charges - which typically erode any cash value of ILPs once the insured reaches the age of about 55 - however, she asked if it made sense to keep the policy or whether she should surrender it and buy something else.

Financial consultant Tiyo Chiat Haw of IPP Financial Advisers says the course of action will depend on the profile of the insured. A relatively young female would find it easier to get a replacement policy offering the same coverage and same premiums, compared with an older male.

For some, it might make sense to keep an old policy since the premiums payable and coverage are likely to be more competitive than current levels.

Also, your health status might have changed in that period, which means certain conditions might be excluded when you buy a new policy. In such cases, it would be unwise to surrender it.

One other option to consider would be to surrender the policy at 55 or 65 when the ILP's mortality charges become exponentially high, and get the cash accrued over the years. This option, however, leaves you without the policy's coverage.

You might then have to look to term insurance if you want to continue to insure your life.

Generally, whatever the permutation, it is important that insurance coverage be maximised for the years when you have just started a young family and have heavy financial liabilities such as home or car loans.

Priorities will change when you reach the golden years and have fewer financial commitments; retirement planning, for example, will take precedence.

I turn 30 this week. I think about our friend, and my husband's godfather, whom we will never see again. They happened to be single. But if they had young families, imagine the further distress their passing would have caused if they were not adequately insured.

As I embrace a fresh decade, it has become clear what some of my priorities are on the road ahead. It is time to put my signature on those policies I have put off signing for a long time. stinvest@sph.com.sg

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