By: Tan Kin Lian

Critical illness insurance for whole life is expensive. A male at 30 has to pay a monthly premium of about $630 to buy whole life critical illness cover for $300,000 (about 5 year's salary). If this person buys a 25 year decreasing critical illness cover, he pays a premium of about $37 a month. If the remaining $593 is invested in a low cost fund to earn an average of 5% per annum, the savings will accumulate to $300,000 in 23 years (i.e. at the age of 53 years). There is no need to wait for critical illness to collect $300,000. The regular investment plan will produce this amount. At the end of 35 years, when he reaches age 65, the regular investment plan is projected to reach $643,000. This will be much more than the critical illness cover of $300,000 plus any bonus that is added to this amount. Lesson: Buy critical illness cover for one year's salary only, on a short term basis. Insure five year's salary on a 25 year decreasing term plan. Invest about 10% to 15% of your salary in a low cost investment fund.

Source: Tan Kin Lian's Blog My Comments: I'm not sure how Mr. Tan come with a $630 monthly premium for $300K whole life CI coverage. I was just introduced to Manulife WL plan with CI - for a $120K coverage, it will cost about $100/mth for my age (I'm 27). The downside is that that this WL plan have a lower returns as compared to other traditional WL plans. For $300K, I will assume that the premium will be multiplied by 3 or approximately $300/mth, still very much less than $630 a month. However, my strategy is pretty much the same as Mr. Tan - to have enough CI coverage and invest the rest in a low cost fund. The problem is how much is enough? In the example given by Mr. Tan, it will take 23 years for your investment to generate substantial returns. This 23 years is the critical period and is where one should plan on your CI amount. I'm still considering taking up the plan by Manulife ($60K coverage instead of $120K) , to start a low cost investment fund or both.