Should i buy term or life insurance?

Should i buy term or life insurance?

Congratulations. You have just tied the knot, moved into your new house and plan to start your own family. What’s next?

You have also acquired the debts and liabilities of having a mortgage to service and a family to feed.

Now the most important question daunt you. What happens if an unfortunate event renders you and/or your spouse incapacitated? Imagine a pillar that gave way and cause the entire building to collapse. It will be a disaster for that to happen.

How do you address that then?

You need another pillar to support the building. Insurance is the key – the third pillar. Getting yourself covered is the most responsible thing you can do for the family.

What are the different type of insurance?

There are many types of insurance in the market and knowing which is the most appropriate for you is an important financial decision. There are two main types of life insurance.

1. Term Insurance
2. Whole Life Insurance

Term insurance, as the name suggests, covers you for a term period you define. It can be as short as a yearly renewable term or it can cover you all the way until you become a centenarian.

Whole life insurance covers you for the entire life. The key difference is there is no cash value for a term plan as compared to whole life insurance.

The question now boils down to if you should get term or whole life insurance or a combination of both?

Term versus whole life insurance

Whole life insurance might seem attractive with a guaranteed cash value being paid out should you decide to surrender the policy later in the policy years. It seems like a no-brainer then – to get whole life insurance rather than a term policy that expires with no cash value. At least, that’s what many financial planners out there are advocating. Why pay to rent a house (in this case, purchasing term insurance) when you can afford to pay for the house and own it (purchasing whole life insurance)?

First, here’s a nifty infographic that put them side by side to show you the main differences.

Term vs Whole Life Insurance

Now after understanding how both products work, let’s place both of them side by side and examine them.

Let’s assume the following scenario:

Paul, a 25 years old male who wishes to get covered at $100,000 sum assured for death, terminal illness and disability. He also wants to accumulate some cash for retirement.

There are two options he can consider:

1) Buy a whole life insurance that can meet both needs; or
2) Buy a term insurance and invest the difference in other assets

1) Buying a Whole Life Insurance

It will costs him $112/month to get a $100,000 cover for death, terminal illnesses and disability. Should he retires at 55 years old (30 years later), he can choose to surrender the policy with a guaranteed cash value of $28,646 together with a non-guaranteed portion of $30,142 (using a bonus rate of 4.75%) – having paid $40,170 in premiums altogether.

Not too bad isn’t it? Even if the economy has taken a beating and Paul doesn’t get the guaranteed portion of $30,142, he still gets back $28,646. Then the outlay for his protection would cost him $11,524 over 30 years. Well, no free lunch in this world, so the question is if it is justifiable for him to pay that amount for insurance?

a) Yes, it is reasonable to pay $11,524 for protection over 30years. Furthermore, it only costs him around $384/year.

b) Some may also argue that there is still a possibility of him getting some of the non-guaranteed portion and even have the chance to make a ‘profit’ of $18,618.

Wait..

Let’s take a look at the second option and see how it matches up.

2) Buying Term Insurance and investing the difference

A similar term cover for Paul would cost him $12.80/month under the SAF Group Term Life insurance. That adds up to $153.60/year. It covers Paul for 30 years and it expires without cash value when he is 55.

The difference of $99.20 as compared to the first option can be invested into other assets such as STI ETF which has return 7-8% for the past 30years.

Assuming a 8% growth, Paul would have accumulated approximately $147,843.66 when he is 55 years old. Now contrast that with the first option of a guaranteed $28,646 plus a non-guaranteed of $30,142. The difference is huge.

Even if Paul is more conservative and expect a growth of 4%, he should be expecting a cash value of $68,849.90 after 30 years.

Wait, isn’t it non-guaranteed as the first option? But hey, Paul has the full control and flexibilities on when he can liquidate his invested assets should rainy days come.

We have our winner: Buying term insurance and investing the difference is the way to go!

And if you are still not convinced, Suze Orman says it all.

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How to save on your electricity bills

How to save on your electricity bills?

Before we go into the various methods on how to save electricity bills, let us find out what are the appliances that consume the MOST electricity.

According to the National Environment Agency (NEA), the three appliances that consumed the most energy are air-conditioner, water heater and refrigerator – with the former consuming the most electricity.

If that is really the case, what should be done to reduce the consumption?

Lets find out!

1. Set your air-conditioner thermostat to 25°C or higher

Singapore is a humid place and at times it can get really hot and stuffy in a room. Use the air-con if you wish, but you don’t need to turn your room into a Nordic country by setting your thermostat below 20°C to be comfortable. Set the temperature to 25°C or higher. Do you know that for every degree raised, you save an estimated of $15/year? If you can replace your air-con with a fan, bring your family out for a feast at the end of the year with the moola saved.

2. Reduce the use of heat-emitting appliances

Heat emitting appliances like iron, hair dryer, tumble dryer, induction stove and water heater uses lot of electricity. Here’s how to reduce the use of each appliances.

A. Iron
Instead of ironing clothes, try this – hang your clothes on plastic hanger and place them in the bathroom when you take a hot shower bath. Make sure the window and everything is close so that steam stays in the room. It takes about 10-15 minutes for your clothes to be wrinkle-free.

B. Hair Dryer
If you have long hair, drying it after a shower is a pain. Hair-dryer will usually do the trick but it is actually one of the main culprit for inflating your electricity bill. Try using a super-absorbent microfibre brush to comb your hair after a shower or wrap it up with a microfibre hair turban.

C. Tumble Dryer
Of course, you can hang your clothes on the traditional bamboo stick method. It’s the best method that does not consume any electricity. Also make sure you use the high-spin method on your washing machine as the electricity used to create the extra spins will be less than the electricity used to generate heat from a tumble dryer.

D. Induction Stove
Use a gas stove if safety is not an issue.

E. Water Heater
There are a few ways to save electricity consumed by the water heater. Here’s a few:
Use a smaller size heater because electricity consumed is based on the amount of water heated. Switch off your water heater immediately when not in-used. Keep thermostat at medium level and use heat insulating water pipes to prevent heat loss. Lastly, if you want to save water and electricity, go to Sembawang’s Hot Spring.

3. Fill up your refrigerator’s empty spaces

Who say less is always going to save you more money? For a refrigerator, it works the other way. First, you need to understand some physics on how heat moves in air. Air is dense and not a good conductor of heat, thus they moved by masses of warm and cold air trading places. In an empty fridge, lots of trading takes place when you open your fridge. If it is full, heat can only be transferred by conduction.

You can fill up your fridge with jug of waters, ice packs, or any empty containers and bottles so that there is no room for hot air to enter and replaces the cold air – which saves the energy to pump the extra heat out of the refrigerator.

4. Use a LED TV instead of a Plasma TV

A Plasma TV consumes more electricity than a LED TV because electricity is used to charge up every gas cell in a Plasma TV whereas in a LED TV, the light is independent and shared across in an efficient way.

A Plasma TV also generates more heat than an LED and if you keep your air-conditioner on the entire day, it uses more electricity to cool the room temperature.

5. Off appliances on standby mode

Appliances on standby mode contributes about 10% of a household energy use. Turn them off when not in use. Common items are laptop, TV, radio and heater.

6. Submit your own meter reading

Once every two months, SP Services will send someone to read the electricity meter located outside your house. The readings are estimated on months that meters are not read. To prevent overcharging, you can actually submit the reading yourself online to via their phone services.

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