It is mind boggling sometimes even for financial professionals to compare life insurance quotes when there are so many parameters and features to look out for, not to mention for the man in the street. To be able to truly tell whether Quote A is better than Quote B, the below 5 key pointers are of paramount importance and they are ranked in order of significance (with the assumption that you are looking for the best deal for insurance coverage).
1) Sum assured per dollar premium
Divide the guaranteed sum assured you get by the premium you have to pay each year. You will derive the instant estate or monies your dependents will receive for every dollar of premium you pay today. This is by far the most important factor to consider. Some people make the critical mistake of checking how much returns they will get back in 50years’ time should they still be alive and kicking then. This is incorrect as the main purpose of insurance is for family protection so that your family will get an instant bequest should anything untoward happen today once the insurance policy takes effect.
2) Cover term
This refers to the period that the insurance covers you. Usually when the cover term is longer, the premium is more expensive; that explains why a 5year term plan is cheaper than a 30year term plan. Make sure the cover term protects you for the time when you are still caught within the ‘sandwiched’ age ie when your parents may need you to supplement their retirement funds and your young children are not economically independent yet. In comparing 2 different quotes, make sure that the cover term is the same in order for the comparison to be fair.
3) Minimum benefit
Many life insurance policies embed a feature which is commonly known as a Minimum Benefit. Essentially, it is embedding a term plan into a whole life participating plan to multiply the coverage during a particular period of time. So instead of comparing 2 quotes using the basic sum assured, be sure to compare the minimum benefit and the age that this benefit stops, usually at age 60, 65, 70 or even up till 80.
4) Total and Permanent Disability (TPD) Payout Waiting Period
Although most insurers pay out TPD claim once it occurs and is certified by a medical professional, there is a small handful of insurers which has a 6 months waiting period before paying the TPD claim (in the event of loss of use of limbs). This will make the TPD claim potentially more arduous and naturally, premium could be cheaper.
5) Surrender value
Last but not least, after comparing the above 4 main factors, one can also take a look at the surrender value of the plan (in the case of a whole life participating policy) at a later stage in life say eg age 70. Nevertheless, should Quote A scores in all the above 4 factors and loses out on this last point to Quote B, Quote A will still be the better choice as your key purpose should be instant estate and coverage for your family, not how much investment returns you can derive out of this policy. For investment returns, one should be looking at savings endowment plans (usually issued with some coverage too), unit trusts or exchange-traded fund investments, not life insurance.
Insure yourself, protect others.
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The author of this article is Mr Sean Ong. He is a Certified Life Coach and a Chartered Financial Consultant with more than 14 years of experience in the finance industry. A shareholder with the one of the largest independently-owned financial advisory company in Singapore, Sean also leads a top financial advisory group and has been featured on the local TV and radio. In his efforts to contribute to the society, Sean ran 1,000km over 87 days to successfully raise more than $13,000 for a children charity in Year 2012. He also published a book called “Mend Your Socks!” where sales proceeds were donated to charity. Sean can be contacted at firstname.lastname@example.org.