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.

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.

NTUC Income will be making some changes to their Enhanced Incomeshield Plans commencing or renewing on 1st September 2010 and onwards.

1) Introduction of Living Organ Donor Transplant Benefit

This benefit covers the insured if he donates his organs to an immediate family member. Aviva added this benefit earlier and NTUC has now followed suit.

Plan EP : $60,000 per transplant
Plan EA : $40,000 per transplant
Plan EB : $20,000 per transplant

EP = enhanced preferred
EA = enhanced advantage
AB = enhanced basic

2) Increase in maximum confinement limits for community hospital

Plan EP : Increase from max of 45 days to 90 days
Plan EA : Increase from max of 45 days to 90 days
Plan EB : Increase from max of 45 days to 90 days

3) Increase in limit per policy year

Plan EP : Increase from $500,000 to $600,000
Plan EA : Increase from $250,000 to $400,000

There will be a general increase in premiums across the board for the advantage and preferred plans.

For more details of the changes, you can refer to the document here:

Revision to NTUC Enhanced Incomeshield

In addition, NTUC will be giving out wellness coupons to all Incomeshield holders (including the non-enhanced version). There will be vouchers for health screening and vendors like OSIM and Unity. Look out for those when you get your next renewal notice.

As part of the underwriting requirement, NTUC Income will be sending applicants aged 60 and above who apply as new applications or upgrade applications to Enhanced IncomeShield (Preferred, Advantage, Basic) for a routine medical examination.

The interesting thing about this new medical examination requirement is that NTUC will be paying for it. Typically, the premiums from shield plans are lower than traditional life plans so insurers usually do not pay the bills if any medical examination is required.

Things have probably come to a stage whereby it is cheaper to send everyone age 60 and above for a checkup rather than accepting all of them and then run the risk of having very unhealthy personnel in the insurance pool.

Application for insurance plans is always based on disclosure by answering questions related to health. If someone does not go for any health checkup all his life, he might answer “no” to all the questions but that does not mean he is perfectly healthy. For example, he might be suffering from health blood pressure or high cholesterol without his knowledge.

When it comes to administering claims for those conditions, things might get complicated as it will then be a matter of proving or disproving “ pre-existing conditions“. That will depend on the doctor’s diagnosis of when the condition first occurred and whether the insured can justify that he had not had any symptoms at all.

A routine medical examination at the point of application would be able to detect some of these common medical conditions and allow the insurer to either exclude the conditions or even reject the application.

In a way, insurance operates similarly to a bank.

When you don’t need money, a bank will keep on offering to lend you money. When you need money, they will turn you away.

When you are healthy and don’t need any hospitalisation, you will be able to buy medical insurance. If you are unhealthy, the insurance company will turn you away when you apply.

Unfortunately, most people only realise the need for insurance when they become sick and by then, they might not be able to get it.

NTUC is currently having a promotion for some of their products.

They will be rewarding customers with choice of vouchers (ranging from $120 to $300) from either Fairprice or CapitaLand when they sign up for any of the following plans from 15 May to 31 July 2010 (policies must be incepted by 31 August 2010 to qualify for the promotion)

Such promotions are good for marketing purposes but in general, we should never be induced into buying an investment/insurance products due to a promotion (offering freebies) or discounts.

Make sure the product fits your needs in the first place. If it does and there is a promotion going on, then treat it as an extra bonus.

Some products even have promotions or bonuses that seems to last forever. You can be sure that these extras have been priced into the product in the first place.

Consider the same product that is priced at :

A) $800

B) $1000 but with a discount of 20% (ie $800)

It doesn’t take a genius to figure out that B will sell better.