Buy term insurance

Following up on Tan Kin Lian’s advice on avoiding whole life insurance policies with regular cash payments, here’s a tip that your insurance agent will probably never tell you:

Insurance can be de-linked from investment.

In other words, it’s possible for you to buy pure insurance – insurance that gives you and your loved ones protection, allowing you to have peace of mind and not worry about sudden income loss or even death.

There are such products in the market.

They are called term insurance. It is an insurance product that does not have any form of investment element (e.g. linked with unit trust/ funds, or generates bonus, interest, return, …).

In fact, it doesn’t even have any cash value. Yes, whatever premium you put in, you will never get back. BUT, the premiums are low because they are used purely for protection.

(A somewhat related insurance product is the mandatory fire insurance you buy for your apartment/house. The premiums are low, there’s no cash value, but you still get good protection.)

Here’s a Wikipedia article on term insurance.

And why wouldn’t your agent sell you term insurance? The answer is simple: they make much more money from you (your premiums) if you buy those fancy investment-linked insurance policies.

Try asking your insurance agent or “financial consultant” about term insurance. Chances are he/she will divert your attention back to those fancy high-commission -generating insurance products.

Now, why shouldn’t you link insurance with investment? Answer is also quite simple: you should buy insurance just for protection and look for better ways to invest your money. Why contribute to your agent’s commission when he/she isn’t even accountable for your investment profit/loss?

In fact, Tan Kin Lian recommends buying decreasing term insurance and to separately invest what you save (from not buying investment-linked insurance).

Tan Kin Lian is the former CEO of NTUC Income, one of the largest insurers in Singapore. He is now retired.