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Decreasing Term Feature of TM Legacy Plus
Someone asked me about the minimum benefit feature of TM Legacy Plus and why it is considered a decreasing term and not just a normal term.
First of all, a decreasing term refers to an insurance plan that has a sum assured that decreases over time.
For example, you could have a (straight line depreciation) decreasing term coverage of $300k over 30 years. The sum assured will reduce by $10k every year until it reaches zero.
Decreasing term insurance plans are usually used for mortgage insurance protection as the outstanding loan will also reduce over time. Typically, the rate at which the insured value drops will not be linear. It will depend on the interest rate input used and the decrease will be similar to that of a housing loan amortization.
Let us take a look at the TM Legacy Plus for a male non-smoker aged 30. A sum assured of $100k for death, total and permanent disability (TPD) and critical illness (CI) will cost $2561/year payable over 25 years.
Assuming a projected investment return of 5.25% for the insurance par fund, the death benefit will increase at the following rate for the first 10 years (figures are rounded to the nearest thousand):
- 101k
- 102k
- 103k
- 104k
- 106k
- 108k
- 109k
- 110k
- 112k
- 116k
Because of the minimum benefit feature, the payout will be the higher of $180k or the death benefit if there is a claim before age 65. This means $180k will be paid out in the first ten years.
Therefore, what you get in this example of TM Legacy Plus is essentially a whole life cover of $100k (which increases over time), and a term cover of $80 (which decreases at a rate of about $1k for the first few years).
Hope that clarifies.