You mentioned again that the price of term goes up with age. Let's use the scenario of this 52 year old guy. You suggest he buys a 10 year term plan. What happens when he is 62? His health will have deteriorated making it difficult and expensive to get another term policy. He may even be uninsurable at this time. Wouldn't it be better for him to go for whole life and lock in a set rate right now, assuming he will live past 62? You didn't address my other questions, I was asking not only for discussion purposes, but because I'm interested.
If you charged an hourly rate and helped to talk people objectively through all the different options available that would we better and give advice on how to get the best deal and avoid the pitfalls and exclusion clauses. This is the the type of financial planner that would be the most effective I think. I would be interested but I don't know how long I'm going to stay in one place, are the product policies that you could recommend easily transferrable in different countries e.g. life insurance? If you knew the ins and outs of that type of thing that is useful.
But comparatively, whole life is expensive right from the start. Insurance is always a question of what you need, what you can realistically afford and whether or not the money you might overspend on insurance potentially has better earning power elsewhere. Of course, the possibility of falling ill or having an accident means that everyone should have some, but the difficult question is determining how much is enough for your own personal situation. Maybe E.A. can expand on this for us.
An example: I recently had this discussion with someone who makes an average white collar salary (about NT$50K/month) who pays NT$5000 a month towards a huge whole life policy. That's 10% of her salary. Her logic tells her that it is value because if anything happens to her, she or her dependents (of which she has none!) will be taken care of. By consequence, she has trouble meeting her budget every month and has accrued credit card debt which she pays upwards of 15% p.a. on! :doh:
Most whole life policies also accumulate cash that can be used for emergencies, increase the amount of the policy and can be used to borrow against. Whole life policies are guaranteed to pay out as well, term is not. You could pay into a 20 year term, become ill and unable to renew, die and the family gets nothing.
Are you sure her parents will not be dependent on her? Also, is this an investment life policy that pays a lump sum after 20 years, it might not be such a bad idea, except for it is a high % of her salary.
Good points, HH, but doubtful: She comes from a family of 5, she in the middle, so the issue of support would fall on the eler siblings. They (the parents) have significant land/property holdings and her father retired shortly after hitting 50. Also, do many children buy insurance with the idea of supporting their parents in mind? The idea that a child will precede a parent in death is possible, but quite unusual.
Even as an investment policy, the money paid out after 20 years is nowhere near what she could make if she saved, paid off her debt and invested the remainder otherwise IMHO. I'm not saying that a life policy doesn't have it's merits in certain circumstances if you can afford it, but a lot who can't buy into them and end up accruing significant debt paying for them each month.
White Tiger I apologise - I'm not sure yet which firm I would use as my umbrella there are a couple of options open to me. Licenses also look tricky for Taiwan, and I am working through the issues.
My assumption with the 52 year old was that within 10 years he would have put away a sizeable nest egg. His primary concern was for his baby's tertiary education. The 20 year policy would be more expensive and currently he is short of funds. There is no "right" answer my opinion based on the information he gave me was that the 10 year would serve his purposes. I certainly would not encourage him to buy a whole life policy, they are VERY expensive and he can get better value using separate term and savings - there is a point after about 17 years where this can turn the other way dependent on mutual fund fee structures but remember the baby is 2- it will want to go to uni at 18 or 19 not 22, so I think the term + mutual funds option is better.
My goal would be to serve the ex-pat market so all products would have to be "offshore" and hence transferable. This is also why I am having some difficulty working out what licenses I need.
I don't believe in the "golden rules" of how much you need. Some advisors will tell you that you should have X or Y times your salary but every family is different. For example my wife is young enough to work and would probably move back to her home town if something happened to me, clearly our needs are different to someone older with ties to where the family are based (schools/family/career etc.). This is why I would prefer to sit down with someone and come up with a plan that works for them. There is no point recommending a comprehensive plan that comes out at more than the individual can afford for example.
With regard to your friend, I don't think 10% of her salary is excessive in terms of savings - but I haven't gone through her expenses. I would argue that it may be the wrong product for her but would not recommend she switch it without understanding things like the surrender value - it may be that penalties on surrender would be more punitive than her credit card debt. It seems like she is clueless and could use some good advice, but has probably bought a product from a family friend, and ultimately at maturity will be extremely happy with the payout - even though she may have done better with different advice.
Good luck, EA.
Although I didn't earn a huge amount in Taiwan, I had no dependents or responsibilities so my attitude to money has always been 'ignore it'. The plus side to that attitude is that I never spent all my salary, however miniscule it is. My head is firmly in the sand and I should really have financial plans other than being nice to the old people in my family, hoping my boy will reveal himself to be a secret aristocat with a castle in Germany or daydreaming that I will leave my laptop in a taxi which will be picked up by Tarantino.
Not dying alone in a rented hovel in Bangkok is a good thing for me to aim for but I don't understand pensions and most of my father's generation are already dead. I'm just not sure if it's a horse worth backing, gene-wise.
Should I just try and save money? Do pensions give you more back? Will I be able to donate it to charity if I die in my fifties?
Aiyo. Teatime. Real life is creepy!
I suppose that is a positive perspective to approach this from; that, even though it may be contributing to her current debt, that it is a kind of forced saving for the future. I just wonder how it is worthwhile considering the damage it has done to her credit to this point. I do agree that there is no point in trying to switch out or alter it now. In fact, I advised her to look at her other expenses and consider how she could free up liquidity there to pay off her debt that way.
Wise advice. Let us know when you are set up and ready to go. There might be a couple things I'd like to talk to you about.
Sounds like there is quite nice niche for you pal, hope you make a go of it. I would also be interested in talking biz. I have no problem with a financial advisor getting commission. It would be the only way for you to make this a successful business. Trading time for money simply won't work with this sort of business. For insurance products, the commission doesn't come out of the clients' pocket anyway, so as long as you are dealing with an honest agent...
With a commission structure, an agent could provide free services like consultations, preparing a budget, etc.
May I ask where the money does come from?
The corporation one works with or for.
Has it occurred to you that all of it is factored into the premiums the client pays?
You talking to me Jive turkey?
I haven't read through all 4 pages, but I can say for sure that I wish you'd been around in 99--I could have, and would have used your services.
If I end up on the island again, I'll look you up!
sounds interesting....okay Edgar Allen if you do start something then let me know...thanks!!!
Of course, how else would a company exist?