Here is a hypothetical but typical female client of next age 28 with the following existing insurance coverage recommended by a typical unethical insurance adviser:

1. 100K sum assured + 100K critical illness ILP. $1,200 annually.
2. Medishield
3. Anticipated endowment $4,200 annually.

The problems for the above are:

Problem #1 – The ILP will likely lapse at end older age unless premium is increased to make up for the escalating insurance charges. Therefore the client will not be covered when she is old especially for critical illness. Why would anyone wants to buy an insurance policy when it is not available when one really need it?

Problem #2 – The hospital & surgical plan is dollar capped. The insured cannot choose her own doctor/hospital such as private ward. An insurance is one that does not limit your choice when you are desperate for help.

Problem #3 – Why would anyone put in money into a saving plan but only to get back regular payout? Moreover, the priority for such young age is protection planning. For those with higher risk appetite, one may want to consider other high risk instruments to invest.  

Problem #4 – From fact finding, she needs $2,300 of monthly income in the event she cannot perform material duties of her own occupation. Her occupation tends to have a higher chance of mental disorder and vocal disorder due to occupation hazard. Her existing plan do not compensate for the lost of income in such scenario. Take for example, if she cannot work for 37 years (up to retirement age of 60), her lost of income based on simple multiplication excluding inflation is $2,300x12x37 = $1,021,200.  

From the above “junk” policies she had, she has significant shortfall and underinsured.  Huge amount of money is pour into insurance yet she remains underinsured. After doing the necessary fact finding and analysis here are my proposed insurance portfolio reconstruction: 

1. $100,000 whole life policy with critical illness $2166 per year for 20 years only. 
2. Hospital & surgical plan private ward - $142 (medisave) + $50 (cash). Subjected to deductible of $3000
3. Disability income insurance for monthly benefit $2300, 3% escalation benefit and 3 months deferred  period and expiry age 60. Premium is $1,379.35 per year. Note that female’s premium is nearly twice that of male counterpart due to higher risk.

I had advised her to consider in additional term policy to increase coverage for the sake of locking her good health now. She will need a higher coverage when she has dependents in the future. However, she decided to take the insurability risk of not taking up a term policy.

Solution #1 – By recommending a limited paying premium whole life policy with critical illness, she has no need to pay premium when she retires. The policy covers her for life. 

Solution #2 – The H&S is significantly improved because it is as-charged but subjected to deductible $3000 per policy year. This deductible is only paid when a claim is made. On those years which there is no claim, this deductible is not paid. 

Solution #3 – Disability income hedges the risk of unable to perform material duties of own occupation. The potential liability of $1,021,200 is now hedged by a disability income plan. 

In terms of saving, previously the client pays $1200+4200+30=$5,430 yearly yet remaining underinsured with junk policies.

After consultation with me, she pays $2166+142+50+1379.35=$3737.35 yearly.

Annual savings = 5430-3737.35=$1,692.65 

My advisory fee is only $2000 to $5000 but what the client gain is almost unlimited savings. She can sleep well knowing that she and her family will be well taken off in times of need. Afterall, this is what insurance is all about.