Some life insurers market a whole life or endowment policy with regular pay-backs every one, two or three years. They sell large numbers of these policies.
This type of plan give poor value to the customers. Here is the reason:
* the insurer charges the normal premium for the basic policy
* they add an additional premium for the regular payback
* the additional premium has to loaded to cover the commission and expenses
For example, if the regular pay-back is $3,000 every 3 years, the insurer has to add $1,000 plus $100 (to cover commisison and expenses). It does not make sense for the customer to pay an additional $1,100 a year to get $3,000 every 3 years.
This is not transparent to the customer. The customer is not aware that he is paying an incurring additional expenses for this benefit. He is worse off.
Somehow the insurance agent is able to make this plan look more attractive than its reality. This is the power of false marketing.
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