Sometime my client buys a very large term insurance to provide for their family if something happens to the sole bread winner. As we know term insurance of $0.5m to $1m is common these days. But one thing they worry about is that their survivors may not know how to manage the money. With such large payout, their family will be a subject of target by salesmen and “MIA” relatives who appear suddenly to borrow money. Also this money has to be managed well otherwise if the expenses of the household exceeds the projected expenses catered for, then the insurance payout will be quickly exhausted. Some of my clients have resorted to looking at setting up a trust to manage this big about of estate. Unfortunately trust isn’t cheap and also there is always on-going problem of finding an ethical trustee. Professional trustee is going to charge an on-going fee which might not be affordable. My colleague pointed to me one interesting term insurance that can address this problem:

This particular insurance is like term that has no surrender value. Upon diagnosis of critical illness, certified total and permanently disabled or death, the insurance company does not pay out in lump sum but rather as a monthly income up to the remaining coverage term of the policy.

Take for example, a person of last age 28 years old and male, sum assured of $1725 monthly income and coverage up to last age 64. Upon death, TPD or critical illness, the insurance pays $1725 monthly to him (or to his estate if he already died) until the end of term. Thus the absolute maximum total payout is $1725 x 12 x 36 = $745,200. The annual premium is $1,119.55.

In this fashion, he does not need to worry about his family not knowing to manage a large sum since they will only be receiving a monthly payout. No need to setup a trust or whatsoever. Truly an interesting product. I think this is one good tool for estate planning.

Update (11 Dec 2007): The product is not guaranteed renewable. Thus I retract my statement that this product is good.