Tuesday, May 5, 2020

Term Insurance vs Investment Link in 2020

Back in 2008, I wrote about Buy Term Invest the Rest.  Is it still a good strategy now; 10+ years later?  Well, let's take a look; :-
In the past insurance is insurance and mutual fund is mutual fund.  So in order to optimize your personal finance portfolio you might want to use the smallest amount to buy just enough term insurance as protection (against your goals/targets) and then invest the rest of the money in mutual fund.  In general, you would get higher return than just putting all money into the same insurance company itself.

World has changed rapidly since then and today one of the most popular insurance is Investment Link - which is also a form of Buy Term invest the Rest but managed by the same insurance company/group itself.  I called it hybrid back in 2008 but now it is commonly known as Link Policy - linking insurance to mutual fund.

Below is a sample of term insurance vs link policy with only life coverage.  They are not exactly apple to apple comparison but the cloest possible.  In short; for the same coverage RM 165k, term insurance premiume is RM 1,802 while for link policy it is only RM 1,200

Link Policy SA 165k pay RM 1,200 12 years
Link Policy SA 165k pay RM 1,200 12 years

Term SA 165k pay RM 1,802 12 years
Term SA 165k pay RM 1,802 12 years

So even if you only want protection, 
getting a link policy is significantly 
better than term insurance!!

Ofcourse this will require more studies and comparison depends on age, coverage amount, different insurance companies etc.  The message is there are many products in the market nowadays, simple concept may not be able to help you optimize your portfolio anymore, more details study is needed.  There are many reasons and factors behind this but in short, link policy is newer product than term.  Usually newer products are more relevant in today's challenges than older products.

However, buy term invest the rest is still very relevant.  For example, you may want to consider group term instead of just normal term insurance offered by a typical life insurance company.

What do you think ?  Do you prefer term of link policy nowadays ?

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