NTUC has just launched a new tranche of Capital Plus (CPN21) with immediate effect.

Capital Plus (CPN21) is a single premium short-term savings plan with guaranteed returns. This plan has tenure of 3 years, with a guaranteed maturity benefit. It also provides cover against death and total & permanent disability (TPD).

CPN21 offers a guaranteed return of 1.4% p.a. for a policy term of 3 years. There is an early surrender penalty of about 10% if the plan is surrender before maturity.

Capital Plus is available from ages 16 to 80 (last birthday), for amount starting from S$10,000, up to a maximum of S$1,000,000.

Upon death or TPD within the first policy year, the benefit payable will be the single premium. The death or TPD benefit payable after the first year up to maturity is 105% of single premium. For TPD, the benefit is payable if it occurs before age 65 (last birthday) or maturity, whichever is earlier.

Note that the tranche size is small and it is likely to be taken up in a very short time.

Capital Plus is available for cash and SRS only.

The other day, I got a request from my friend for a quote for a term insurance plan.

He had read some articles online about why a term plan is more superior to a whole life plan and has proceeded to terminate his existing whole life plan.

I was alarmed when I heard that he was already cancelling the old plan before getting the new coverage.

In this case, the replacement insurance coverage should be put in place before cancellation of the old plan. You never know whether you have issues with insurablility, etc.

Furthermore, I pointed out to him that typically, there would be a 90-day waiting period for some critical illness. So essentially, he would not be covered for these illnesses for at least 90 days.

Incomplete knowledge can be a dangerous thing.

Waiting Period

No benefit will be payable for Heart Attack, Major Cancers or Coronary Artery By-Pass Surgery if the diagnosis of Heart Attack, Major Cancers or Coronary Artery Disease requiring Coronary Artery By-Pass Surgery was made within ninety (90) days from

(a) the issue date of this Supplementary Benefit;
(b) the Benefit Commencement Date of this Supplementary Benefit; or
(c) the date of reinstatement of this Supplementary Benefit,

whichever is the latest.

There has always been the ongoing debate over whether buying a whole life or term insurance plan is better.

It is not possible to have a standard answer that applies to everyone as it really depends on your objectives. Not to mention the fact that products from one company might differ from that from another company. In most cases, it would also take more than one product to cover your needs.

Let me share with you some of my viewpoints and then you can decide whether what I say makes sense. Along the way, I might put in some numbers to help you better understand. All figures are based on a 24-year-old male non-smoker with a sum assured of S$100,000 using benefit illustrations from NTUC.

Your views might differ but like I mentioned earlier, everyone’s objectives is different and there is no right or wrong answer.

1) I do not use a whole life plan for savings (ie I will never surrender it for the cash).

The table below shows the cash value (for Vivolife) upon surrender and also the benefit upon claim after 40 years. These figures are based on projected returns of 3.75% and 5.25%. Premiums are $1644 per year payable for 40 years.

It is clear from the amounts shown that the payout from a claim is much higher than that for surrendering a plan.  The actual rate of return (% pa) is shown in the table below:

Therefore, if I buy a whole life plan, I buy it with the intention of holding it till I claim.

The claim will be upon death, total and permanent disability (TPD) or critical illness (CI). Which brings me to my second point.

2) The only reason why I even consider a whole life plan is for the lifetime Critical Illness (CI) coverage.

I will not need death coverage for life so I use the benefits more for TPD or CI. Any extra death coverage required can be covered using a term plan.

For a claim, returns of 3.76% and 4.75% is not anything fantastic but pretty decent I would say. If I hold the plan long enough, the claim will definitely happen. Hopefully, it’s for CI (and not death) so I will get to use the money.

Effects of Deduction

Under the benefit illustration, you can find a table called effects of deduction. It shows you what the value of your premiums ($1644 per year) would be if you had invested it yourself at 3.75% or 5.25%. It works out to be $152,857 and $222,243 respectively at the end of 40 years.

If you compare it with the cash values (upon surrender), it will show the effects of deduction to be quite hefty at $54,871 and $96,862 for the 3.75% and 5.25% projections respectively.

Actually, that’s not the best way to compare it as there is a price to factor in for the insurance component. In the first place, we shouldn’t even use the insurance plan as a savings plan. If you want to save/invest, invest the money directly so that there is minimum deductions.

For a fairer comparison between a whole life plan and a buy term and invest the rest strategy, you will need to factor in the cost of the term insurance. At $420/year for NTUC’s Living Rider, you would only be able to save $1644-420=$1224 per year.

$1224 invested over 40 years will grow to $113,809 and $165,470 after 40 years at rates of 3.75% and 5.25% respectively. To match the cash values and claim benefits of the Vivolife plan, your investment would need to grow at the following rates (% pa) shown in the table below:

For example, if you can grow your $1244 yearly savings at a rate of 3.13%, you will end up with $97,986 at the end of 40 years.

Look at all the numbers and see what conclusions you can draw by considering your own investment returns.

A person who can achieve 9% p.a. returns consistently might be better served investing most of his own money.

A person who leaves all his or her money in fixed deposits might even struggle to match the returns achieved from the surrender of a whole life plan.

At the end of the day, it is not only about whether whole life or term is better. It is about whether you can cover all your needs based on your budget.

Prudential is the latest insurer to offer a universal life product, PruUniversal Vantage.

This comes just after Great Eastern Life launched their own universal life product, Prestige Legacy some weeks ago. AIA also has their own universal life product, AIA Platinum Legacy.

For those who are not familiar with universal life (UL), this class of product might seem confusing at first.

An universal life product is used to provide for a large (mega) sum assured.

Premiums are usually paid in a single lump sum or spread over a few years.

Technically, the easiest way to understand how a universal life works is to relate it to a single premium investment-linked plan (ILP).

The main difference is that instead of being invested into funds, the UL will provide for a crediting rate (or interest) on the lump sum. So, it is like an ILP invested into interest generating instruments.

Prudential’s PruUniversal Vantage offers a guaranteed minimum of 3% interest.

Of course, we should never compare the interest rate we can obtain from a UL with a simple bank deposit because you need to factor in all the charges within the plan. After netting off the charges, the returns will be less than what you will receive from the guaranteed rates.

Other universal life products sold here include Manulife’s Heritage, HSBC’s Jade Global Select and Transamerica Life’s TransAce and TransUltra series.

Most universal life products are denominated in USD as the assets are usually used to buy USD denominated bonds in order to provide for a decent crediting rate.

I read with interest Genecia Luo’s interview with Lorna Tan which was published in the Sunday Times yesterday.

Inside the article, she was quoted as being “a conservative investor” and her portfolio consists mainly of insurance products.

These include a whole life policy which her mum bought for her when she was born, and two investment-linked insurance plans (ILP) which are invested in China, India and Singapore funds.

I want to point out to all my readers here that ILPs are definitely not a conservative investment!

Just because a policy is purchased as an insurance product does not mean it is low risk. Depending on the underlying funds that the ILP invests in, the policy can be as high risk as investing in stocks and shares. In the worst case scenario, the value of the funds can dwindle down to zero (if they perform badly) after paying off the mortality charges.

The 5% and 9% projections that you see in the benefit illustration are only projections and nothing else. They can be misleading and seriously, MAS should make it mandatory to include two columns for -5% and -9% as well.

There appears to be a mis-match between Genecia’s risk profile and what she is investing into.

I have seen many similar cases of conservative investors who have been exposed to more risks that they had expected because they had wanted to buy some life insurance but were sold an ILP instead of a traditional product.

Genetia herself mentioned her worst investment to date was buying a single premium ILP in 2006 for $10k, and subsequently selling it in 2009 for only $500. This is a 95% loss in just three years!

I hope Genetia knows (or someone can point out to her) the risks she is being exposed to.

Lastly, I want to clarify that I’m not bashing ILPs in general here but more to highlight that people need to know what they are buying or have bought. Because investment and insurance products are long term in nature, you don’t want to be in for a nasty surprise twenty or thirty years down the road because by then, it will be too late to repair the damage.