Hey everyone! It’s been a long time since I’ve posted something up on the blog. I guess I’ve been busy sipping coconuts 😉 But seriously, the lack of activity on the blog and more importantly the documentation gap of our journey is something that’s been on our minds so Ms. K and I have now resolved to put up a post every Monday and Thursday.
As my post for today, I’d like to focus on something that’s more dollars and sense. Something that is less abstract than my usual philosophical thoughts…lol. And that is….our latest plan on cutting expenses further.
(especially since costs have gone up due to a car we bought and hiring of a domestic helper)
How insurance became a target
A bit of a background – The SippingCoconuts family have thought of ourselves as being pretty lean when it comes to spending because we do not really indulge in luxuries besides holidays overseas and the occasional eating out (like really…it’s only once a month or two months).
Despite that, we’ve had to face reality that our level of expenses is actually outrageously high and one of the main culprits is the amount spent on insurance premiums.
What, you spend S$15K on insurance premiums each year!!!??
The sad answer is yes…😢 . To SippingCoconuts, this is a totally exorbitant amount for our family of two adults and two kids and even more so because we’ve known that we can reduce it further by restructuring our policies. So why haven’t we taken any action?
One part of the blame on how we got here is due to our general ignorance/misunderstanding of the insurance landscape when SippingCoconuts first started off in our careers. We blindly bought whole life policies and coverage for critical illness, hospitalisation & full coverage riders, and personal accident policies. Basically anything agents sold us. Total suckers 😢 I know…
The other part of the blame on why we’re still in this mess can be laid simply on my procrastination. My bad.
Why pay for insurance?
Life insurance for example, is required to ensure that our dependents have sufficient funds in the event of our early demise. Therefore I view it as a temporary need until FI is achieved because at that stage our estate would be able to perform the same function.
Other types such as medical insurance I see it as a longer term need because my nest egg is only sufficient for normal expenses, and would be impaired if a good chunk is spent on unexpected medical bills. It’s a different picture if the nest egg is 2x my minimum, for eg..
Life insurance
When we signed on for our whole life policies (and even one ‘effin ILP over 10 years back which I have thankfully cancelled), we were not financially “woke” and had conflated life insurance with the common mentality of “forced savings” because whole life policies tend to have some cash value.
Now however, we understand that life insurance is a temporary risk management tool for our dependants, until we build up the nest egg sufficiently so that CocoJr#1’s and #2’s growing up years can be funded in the event us adults leave this world prematurely.
The plan to reduce premiums
We will therefore self-manage our savings and investments and get term life policies for S$2K which is the best method for pure life coverage that we are aware of. What we get to save is S$7K of whole life insurance premiums, giving net savings of S$5K.
Additionally, rather than get a 20 year term like most, we will match it to our expected date to FI. This reduces the premium but note that an extension will cost more if it turns out you need coverage for longer than expected. So if a person expects to FI in 7 years for eg., they could build in some buffer and get a 10 year term policy.
This brings the premiums down from S$15K to S$10K.
The next step is to do more research around our personal accident policies which is another area that I expect additional savings.
There are probably many readers out there who are in the same boat as we were, unfortunately. Hopefully, our sharing of the SippingCoconuts’ approach may nudge you into finding ways to optimise your insurance expenses. Good luck! 😀
Oh, i took a good look at mine and i spend >20k for yearly premiums for my family of 4. WL policies as gifts for my 2 children when they were born with limited pay of 10 years… that’s why the premiums are high!
Did you really cancelled the WL plans for your children as well? In my foolish attempt to reduce cost, i cancelled the early crisis riders and bought some term insurance but but i can’t think of how to cancel the WL though 🙁
Thanks for sharing!
Hi Kris, yes we cancelled our whole life policies including those for our kids. We just think that there’s no reason for kids to be insured as they have no dependents and even when they do have those later, inflation will just erode the value of those policies. Is a $300K policy worth much 25 years down the road? It’s a bit like those $50k policies our parent bought for us. Not a very big umbrella for a rainy day is it?
Please check with a financial advisor but in considering whether to cancel, you probably need to consider your remaining obligations, surrender values, sunk cost, etc. Our kids’ policies are relatively new so smaller sunk cost and lots more left to pay, so we decided to cut it.