Buy term and invest the rest and you could reap better returns from your investments - so some financial planners tell me. I have a slightly different opinion. Yes, investing in investment link funds or stock related insurance instruments do have it's advantages. We have to understand that the stock market will go up..and will come down...period. As a rule of thumb, investing must be for the long term and it's for a different objective. It is for accumulation of wealth not for protection of the family's well being. During a financial crisis when markets are low, a lot of people will start conserving their cash and also sometimes tempted to liquidate their investments. Stay calm, the market will recover in its natural course. More importantly don't mess with your insurance.
Having traditional insurance or endowments plans allows one to use the cash values to pay for premiums, a term commonly use is "premium holiday". It is logical to do this as these plans are usually more expensive (can easily be triple what you pay for a term plan) and since you want to conserve the cash that you have, you may opt for a premium holiday.
However, having a term insurance with normally lower premium means higher cover, so during financial crisis what do you do? Well, there are various options. During this times, I usually find that people are more willing to surrender their insurance plans as compared to selling their car. Why, because you need the car for your various use. If using a car is for the purpose of transport, there are plenty of options to go by...sell the beemer and get a kelisa for example. To me, the answer is just in our ego. This is just a temporary setback...that's life. Surrendering the insurance plan should be the last thing on your mind. It's during times likes these that we are under more pressure and stress. Ensuring that your risk is well managed is probably the best thing you can do, so that you have that peace of mind while going out in the market and sourcing out opportunities.
The point is, is your financial plan only good for sunny days? Can it withstand the storms in your life? Remember, our financial goals will only be realized in 20 to 30 years time. During this period, the financial landscape will be ever changing. Boom times and sunny days will come, so will recessions and stormy days. In financial planning, the mistake that most people make is to assume that the sun will always be shining. Unfortunately, life is full of ups and downs.
As important as it is to invest your money efficiently, it is also crucial that you set aside part of your resources for the right insurance plan so that when the storm comes, you will not be swept away.
Showing posts with label Why Should You Buy Life Insurance?. Show all posts
Showing posts with label Why Should You Buy Life Insurance?. Show all posts
RM 1,000,000
Why do I need a one million dollars insurance cover? This is often the question posed to me every time they ask me to recommend them with the appropriate amount of protection.
My immediate respond ... why not? Would you be interested in a property worth a million ringgit instead? Of course is usually the answer.
Well, lets do a simple comparison. The scenario is a based on a 40 year old CEO whom I met recently.
Say you bought a property worth RM1.0 million and you got an excellent deal from the bank giving you a 100% loan at 3.5% interest with a tenure of 25 years. (question is can you get these kind of rate?)
The monthly installments would be RM5,006.24. Now the total repayment amount that you would have paid to the bank after 25 years would be RM1,501,872. Take this amount and minus the RM1.0 million that you borrowed, thats the amount of profit you would have passed on to the bank! Of course, one would hope that the property value would have sky rocketed in that time ... but to how much? That would be a different discussion, for now we just do a simple comparison.
Lets just get this out in the open. Insurance or Takaful is just a financial tool with the objective of transferring the risk that we would otherwise have to handle ourself. However, with the right kind of product, you can maximize your dollar value tax efficiently.
For example, a RM1.0 million insurance or takaful policy would be around RM9,000 to RM30,000 per year, depending whether its a pure term, composite term or a term with mudharabah (profit sharing). Here, we're not discussing how much return we get, but consider this for a moment.
1. The contract is under your name. You have FULL ownership of the RM1.0 million, whereas the property is under the banks ownership until the loan is fully settled.
2. What would happen if you were suddenly incapacitated and not able to payoff the loan? Well, someone will have to pay for it or the bank will assume its position. So then he said, I can buy MRTA. Well, isn't that insurance? Of course the calculation above did not take into account MRTA, because then the figures would increase. But why do you want the MRTA? Yes, the policy would payout RM1.0 million to your family, whereas the property will need to go through the process of estate administration, assets realization and distribution. How long will this take?
3. Lets compare the expected profit you can make at the end of it.
The Takaful program.
Annual premium RM32,000
Total amount deposited RM800,000
Immediate cover RM1.0 million
Maturity value RM1.2 million
Expected profit RM400,000
The Home loan program
Annual repayment RM60,000
Total amount paid RM1.5 million
Contingency cover RM1.0 million (value of the property)
Expected value RM2.0 million
Expected profit RM500,000
Now, having done all this comparison, we can still argue. So I say, it not about one side having to win and the other lose, its not about who's right and who's wrong. At the end of the day, all this need to tie back to your objectives and your opportunities.
As a conclusion, we need time to build wealth, we need time to build the business, we need time time to sort out all the things we handle, but if an unexpected event take a turn in, our family will not have the time. So do take action on what you can ... now!
My immediate respond ... why not? Would you be interested in a property worth a million ringgit instead? Of course is usually the answer.
Well, lets do a simple comparison. The scenario is a based on a 40 year old CEO whom I met recently.
Say you bought a property worth RM1.0 million and you got an excellent deal from the bank giving you a 100% loan at 3.5% interest with a tenure of 25 years. (question is can you get these kind of rate?)
The monthly installments would be RM5,006.24. Now the total repayment amount that you would have paid to the bank after 25 years would be RM1,501,872. Take this amount and minus the RM1.0 million that you borrowed, thats the amount of profit you would have passed on to the bank! Of course, one would hope that the property value would have sky rocketed in that time ... but to how much? That would be a different discussion, for now we just do a simple comparison.
Lets just get this out in the open. Insurance or Takaful is just a financial tool with the objective of transferring the risk that we would otherwise have to handle ourself. However, with the right kind of product, you can maximize your dollar value tax efficiently.
For example, a RM1.0 million insurance or takaful policy would be around RM9,000 to RM30,000 per year, depending whether its a pure term, composite term or a term with mudharabah (profit sharing). Here, we're not discussing how much return we get, but consider this for a moment.
1. The contract is under your name. You have FULL ownership of the RM1.0 million, whereas the property is under the banks ownership until the loan is fully settled.
2. What would happen if you were suddenly incapacitated and not able to payoff the loan? Well, someone will have to pay for it or the bank will assume its position. So then he said, I can buy MRTA. Well, isn't that insurance? Of course the calculation above did not take into account MRTA, because then the figures would increase. But why do you want the MRTA? Yes, the policy would payout RM1.0 million to your family, whereas the property will need to go through the process of estate administration, assets realization and distribution. How long will this take?
3. Lets compare the expected profit you can make at the end of it.
The Takaful program.
Annual premium RM32,000
Total amount deposited RM800,000
Immediate cover RM1.0 million
Maturity value RM1.2 million
Expected profit RM400,000
The Home loan program
Annual repayment RM60,000
Total amount paid RM1.5 million
Contingency cover RM1.0 million (value of the property)
Expected value RM2.0 million
Expected profit RM500,000
Now, having done all this comparison, we can still argue. So I say, it not about one side having to win and the other lose, its not about who's right and who's wrong. At the end of the day, all this need to tie back to your objectives and your opportunities.
As a conclusion, we need time to build wealth, we need time to build the business, we need time time to sort out all the things we handle, but if an unexpected event take a turn in, our family will not have the time. So do take action on what you can ... now!
Why Should You Buy Life Insurance?
Most people buy life insurance because they care deeply about someone or something
(for example, a favorite charity) or because they owe someone (for example, death taxes
or a loan).
The purpose of life insurance is to provide cash for your family, your business or yourself.
It can help create wealth when you have not had time to do so, and it can help protect your
estate from taxes when you have accumulated a lot of money.
When you die, there will be an emotional loss felt by those you leave behind, but beyond the
emotional loss is the economic loss which will be suffered. If your death will create an economic
loss for your family, your estate, your business, your community, your church or temple or
mosque, your college, your school or your favorite charity, you probably need some more life
insurance.
During your lifetime, there will probably be times when you can use a cash cushion, and that’s
why many people buy cash value life insurance. Cash value puts the life into life insurance.
What is life insurance? Let’s eliminate the mystery about life insurance right from the outset.
Life insurance is money. It is cash. It is a way to create wealth for your family or your business.
It is a way to accumulate cash for your own future. Let’s take an example of how life insurance
works. If you are now age 35, you can purchase $1 million of life insurance for $10,000 per year.
In 30 years, at age 65, you will have paid $300,000.
Based on current assumptions, which are not guaranteed, the cash value would be about
$900,000, and the death benefit would have grown from $1 million to more than $1.5 million.
If you had invested $10,000 per year for 30 years at 5 percent net-after-taxes, you would
have $697,000, and you would have had no life insurance. Where can you predictably get
5 percent net after-taxes over 30 years without taking substantial risk? Once people start to understand
these numbers, life insurance starts to make a lot more sense. Term insurance costs a lot less,
but you have to die to win. Cash value puts the life into life insurance.
Most people do not want to think about life insurance. They don’t like to think about dying,
death, wills, trusts and estate planning. Many people spend more time planning their annual
vacation than they invest in planning their family’s financial future. Successful people do not
have time to become experts in life insurance. They are too busy staying on top in their own
fields of expertise. That’s why it is essential to select an advisor who has the knowledge, wisdom
and vision to help with life insurance planning. The single most important factor in any relationship
is trust. Trust implies competence, which should not be taken for granted.
Asset allocation and diversification. Virtually everyone agrees that it makes sense to diversify.
Don’t put all your eggs in one basket. Life insurance should be part of the defensive portion
of a diversified investment portfolio. If your overall investment portfolio consists of real
estate, stocks, bonds and cash, why not put 1 percent or 2 percent of your total portfolio into
life insurance each year? If someone were to suggest to you that you move 1 percent or 2
percent per year to government, corporate or municipal bonds, you would probably not hesitate
because the number is so insignificant in terms of the big picture.
Reallocating 1 percent or 2 percent of your total portfolio each year to life insurance will have a
far more dramatic impact. Let’s say you are worth $10 million. Moving 1 percent per year,
$100,000, would enable you to create another potential asset of between $5 million and $10
million of additional wealth. Think of this as a “1 percent solution.” One percent of your estate is
used each year to create substantial additional wealth in the future.
Let’s put this in the context of estate taxes. No one knows whether the estate tax will ultimately
be abolished. It’s important to understand the role of life insurance. Life insurance creates
additional wealth regardless of estate taxes.
If you are now worth $10 million, the estate taxes and related costs could be as much as
$5 million…or zero, if the estate tax is abolished. If you were to purchase $5 million of life
insurance, your children, grandchildren or favorite charities will receive an additional $5
million whether there is an estate tax or not. It is that simple. If anyone suggests to you
that you not purchase life insurance, ask them if they are going to provide additional money
for your children, your grandchildren or favorite charities. Clearly they are not. Let’s say the
$5 million costs $100,000 per year, which is 1 percent of your $10 million net worth. Why not
let 1 percent of your estate help protect the other 99 percent? We’re back to the 1 percent
solution.
Why not create a standby line of credit for your family or your business? When you die, your
family and your business will probably need some money. Why not create a standby line of
credit whereby they will receive $1 million when you die? All you have to do is pay 1 percent
interest ($10,000) in advance each year. In essence, this is an interest-only loan where the
principal never has to be repaid. If you decide downstream that your family or business will not
need the money when you die, you will get your money back, plus interest.
$1 million will generate about $50,000 annually after taxes. How much money would you like
your family to have? How much money would you like to have yourself? Cash value life insurance
can provide money for your family when you die or it can be used to supplement your
income when you retire. Without life insurance, how long would it take you to accumulate $1
million? Investing 1 percent per year, $10,000, it would take 30 years, if you were able to get 7
percent net-after-taxes. At 5 percent, it would take 36 years. At zero percent, it would take
100 years. With life insurance, you can have the $1 million of potential protection from day one,
and accumulate the $1 million during your lifetime, too.
If people understood life insurance, they would be lining up to buy it. But most people do not
understand it. This report is intended to help take the mystery out of life insurance. What do
you know about life insurance? Most people think that the premium is an expense because
the premium for other types of insurance is an expense. When you purchase cash value life
insurance, you are creating an asset.
The premium is not an expense. When you purchase term insurance, the premium probably
is an expense because the likelihood is that the term insurance will not be in force when you die.
Summary. Life insurance is a proven way to accumulate money for your family, your business
and yourself. It works if you die. It works if you live. It even works if you are disabled.
With the disability waiver of premium benefit, if you are disabled, as defined in the policy,
the insurance company will waive the premiums, and the cash value will continue to grow
as if the premiums were being paid.
Once you accept the fact that you are going to die, and that it always makes sense to have a
cash cushion whether you live or die, cash value life insurance starts to make sense.
(for example, a favorite charity) or because they owe someone (for example, death taxes
or a loan).
The purpose of life insurance is to provide cash for your family, your business or yourself.
It can help create wealth when you have not had time to do so, and it can help protect your
estate from taxes when you have accumulated a lot of money.
When you die, there will be an emotional loss felt by those you leave behind, but beyond the
emotional loss is the economic loss which will be suffered. If your death will create an economic
loss for your family, your estate, your business, your community, your church or temple or
mosque, your college, your school or your favorite charity, you probably need some more life
insurance.
During your lifetime, there will probably be times when you can use a cash cushion, and that’s
why many people buy cash value life insurance. Cash value puts the life into life insurance.
What is life insurance? Let’s eliminate the mystery about life insurance right from the outset.
Life insurance is money. It is cash. It is a way to create wealth for your family or your business.
It is a way to accumulate cash for your own future. Let’s take an example of how life insurance
works. If you are now age 35, you can purchase $1 million of life insurance for $10,000 per year.
In 30 years, at age 65, you will have paid $300,000.
Based on current assumptions, which are not guaranteed, the cash value would be about
$900,000, and the death benefit would have grown from $1 million to more than $1.5 million.
If you had invested $10,000 per year for 30 years at 5 percent net-after-taxes, you would
have $697,000, and you would have had no life insurance. Where can you predictably get
5 percent net after-taxes over 30 years without taking substantial risk? Once people start to understand
these numbers, life insurance starts to make a lot more sense. Term insurance costs a lot less,
but you have to die to win. Cash value puts the life into life insurance.
Most people do not want to think about life insurance. They don’t like to think about dying,
death, wills, trusts and estate planning. Many people spend more time planning their annual
vacation than they invest in planning their family’s financial future. Successful people do not
have time to become experts in life insurance. They are too busy staying on top in their own
fields of expertise. That’s why it is essential to select an advisor who has the knowledge, wisdom
and vision to help with life insurance planning. The single most important factor in any relationship
is trust. Trust implies competence, which should not be taken for granted.
Asset allocation and diversification. Virtually everyone agrees that it makes sense to diversify.
Don’t put all your eggs in one basket. Life insurance should be part of the defensive portion
of a diversified investment portfolio. If your overall investment portfolio consists of real
estate, stocks, bonds and cash, why not put 1 percent or 2 percent of your total portfolio into
life insurance each year? If someone were to suggest to you that you move 1 percent or 2
percent per year to government, corporate or municipal bonds, you would probably not hesitate
because the number is so insignificant in terms of the big picture.
Reallocating 1 percent or 2 percent of your total portfolio each year to life insurance will have a
far more dramatic impact. Let’s say you are worth $10 million. Moving 1 percent per year,
$100,000, would enable you to create another potential asset of between $5 million and $10
million of additional wealth. Think of this as a “1 percent solution.” One percent of your estate is
used each year to create substantial additional wealth in the future.
Let’s put this in the context of estate taxes. No one knows whether the estate tax will ultimately
be abolished. It’s important to understand the role of life insurance. Life insurance creates
additional wealth regardless of estate taxes.
If you are now worth $10 million, the estate taxes and related costs could be as much as
$5 million…or zero, if the estate tax is abolished. If you were to purchase $5 million of life
insurance, your children, grandchildren or favorite charities will receive an additional $5
million whether there is an estate tax or not. It is that simple. If anyone suggests to you
that you not purchase life insurance, ask them if they are going to provide additional money
for your children, your grandchildren or favorite charities. Clearly they are not. Let’s say the
$5 million costs $100,000 per year, which is 1 percent of your $10 million net worth. Why not
let 1 percent of your estate help protect the other 99 percent? We’re back to the 1 percent
solution.
Why not create a standby line of credit for your family or your business? When you die, your
family and your business will probably need some money. Why not create a standby line of
credit whereby they will receive $1 million when you die? All you have to do is pay 1 percent
interest ($10,000) in advance each year. In essence, this is an interest-only loan where the
principal never has to be repaid. If you decide downstream that your family or business will not
need the money when you die, you will get your money back, plus interest.
$1 million will generate about $50,000 annually after taxes. How much money would you like
your family to have? How much money would you like to have yourself? Cash value life insurance
can provide money for your family when you die or it can be used to supplement your
income when you retire. Without life insurance, how long would it take you to accumulate $1
million? Investing 1 percent per year, $10,000, it would take 30 years, if you were able to get 7
percent net-after-taxes. At 5 percent, it would take 36 years. At zero percent, it would take
100 years. With life insurance, you can have the $1 million of potential protection from day one,
and accumulate the $1 million during your lifetime, too.
If people understood life insurance, they would be lining up to buy it. But most people do not
understand it. This report is intended to help take the mystery out of life insurance. What do
you know about life insurance? Most people think that the premium is an expense because
the premium for other types of insurance is an expense. When you purchase cash value life
insurance, you are creating an asset.
The premium is not an expense. When you purchase term insurance, the premium probably
is an expense because the likelihood is that the term insurance will not be in force when you die.
Summary. Life insurance is a proven way to accumulate money for your family, your business
and yourself. It works if you die. It works if you live. It even works if you are disabled.
With the disability waiver of premium benefit, if you are disabled, as defined in the policy,
the insurance company will waive the premiums, and the cash value will continue to grow
as if the premiums were being paid.
Once you accept the fact that you are going to die, and that it always makes sense to have a
cash cushion whether you live or die, cash value life insurance starts to make sense.
by Howard Wight.
Start by insuring what you
cannot afford to lose.
Your Income
Your Health
Your Life
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