Life Insurance: A Gift To Your Kids That Keeps on Giving

Running out of ideas about what to give your grown up kids for the holidays?  Try something boring like a term life insurance policy.  Yikes! Who wants a term life policy as a gift anyway?  If your kid is a young adult  in school/university or just starting to work, this is a great time for this gift.  Here’s why:

  • The best time in your life, if ever, to get life insurance is when you are young and healthy because the insurance company views the insured as very low risk.   The cost of buying protection for your kid’s life is the lowest when they are young healthy adults.  So there is no better time.
  • Most young adults when they start working will have other financial obligations and typically, buying a life insurance policy is not top of mind.  But life insurance is something your kids will eventually need at some point in their life when they begin to have dependents. As parents, this is a great gift especially if you are able to pay for the premiums for the first few years to help them get started.  
  • When you buy life insurance, you can normally add on a rider for total and permanent disability protection.  In some ways, this is as important because it offers income protection if something happens and your kid cannot work.  The best way to buy this type of protection is to add it to your life policy as a rider.
  • Buy term life instead whole life insurance.  Term life is a fixed payment every year for a fixed number of years.  You are only buying “pure” protection and the insurance policy has no accumulated savings(zero surrender value or payout at maturity).  The upside of term life is the premiums are much lower than whole life.  The downside is that you will not be able to renew the policy and will have to write a new one (or even if you can renew, the premiums will go up incredibly).  You should consider buying a term life insurance that covers your kid until they are 65 years.  (For example, am paying $488 per year for $750,000 sum assured for 47 years at this fixed premium.)
  • Buy a policy that allows you to increase the coverage on the same policy for certain “life events” like graduation from university, getting married or buying your home.  For example, the original policy is for $500,000 protection — but if certain “life-events” happen, the insured can ask to  increase the coverage by up to another 50%. Not all policies have this feature but it offers a greater flexibility for your kid later on in life.  You normally have a few months to exercise this option upon triggering the “life-event”.  For example, AVIVA MyProtector Term Plan in Singapore has this feature. (Disclosure: I am a customer of AVIVA and has no other commercial relationship with AVIVA)
  • Shop and compare online — that is where you should start.  Remember that every policy is slightly different in their terms and conditions – so read them carefully.  Please do not rely on what the insurance agent tell you or what is said on the website.  What is written is what will actually be legally binding.  In Singapore, you can read the policy for 30-days and get a full refund if it is not what you think you are buying. (You can checkout http://www.moneyline.sg or http://www.comparefirst.sg)
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