Tan Kin Lian's Blog: Limited premium policy

Wednesday, July 25, 2007

Limited premium policy

Many people like the concept of an insurance policy that provides cover for a lifetime, but require the premium to be paid for a limited period (say 20 years).

However, they find the premium to be quite high.

Here is an example of a 20 year limited payment policy that covers $100,000 for a lifetime. This policy earns bonus.

For a male aged 30, the annual premium is $2,948. The projected cash value at the end of 20 years (inclusive of bonus) is $82,510. The projected yield is 3.1%.

This is based on the current rate of bonus. If the bonus rate increases, the yield will be higher. If it reduces, the yield will be lower.

Most insurance companies offer a lower yield than the above example. Their limited payment policies is not attractive.

It is better for the policyholder to buy a term insurance and invest the difference in a low cost, well diversified equity fund. The yield should be much higher.

5 comments:

Anonymous said...: Statistics have shown that about 10% who bought par wholelife kept their policy beyond 20 years and these policies are normal policies which require payment for wholelife. Why? Obvious answer is, many couldn't maintain them.With limited premium plans,with more premium,I just wonder how many will keep as long as this.
This is not the only setback of par plans. The greatest setback is that these types of plans deprive customers of adequate coverage. Majority of customers are poor. They need more coverage than anyone else, yet I see many of them are SOLD par type of plans instead looking in their needs and address their needs with term. There are term plans that cover almost whole life, from 80 years to 100 years old.Are they not long enough? Why are they not recommended? Not much commission to be had.
Limited premium plans are good for people with money; they have enough to buy and not at expense of the coverage need and at the expense of their other needs.
Have you heard of SINGLE PREMIUM wholelife? Thse are for high net
worth customers.; July 25, 2007 6:56 PM
Anonymous said...: I agree with the above. Wholelife plans with or without limited premium paying term is Insurers' gimmicks and their marketing ploy to hoodwink consumers into paying more without much added value. Yes they are sold at the expense of coverage.
Recent survey shows that Singaporeans are grossly under insured. Why? The insurance companies and their agents have been around for so many years and what have they done for the consuming public?
The answer is that insurance agents had never put their clients' interest first. They put thier pocket first.
Term insurance don't pay much, wholelife with cash value pays more
com.
No wonder AXA, the world's largest
insurer is committed to selling only term plans and ILPs. They strong believe the concept of buy term and invest the rest.; July 25, 2007 10:30 PM
Anonymous said...: Anonymous (10:30 pm) said that AXA is selling only term plans and ILPs.

I understand that the ILPs sold by AXA have high charges as well. They charges are as bad as the traditional policies.

You can read www.askdrmoney.com to find out their charges.

Do not buy the ILP from AXA.; July 25, 2007 10:44 PM
Khiat Han Hwee Adrian said...: Unless advisers are paid a fee for giving advice, they will always be tempted to sell plans that benefit their pockets more.

Unfortunately, there are still not many people who like the idea of paying advisers a fee. They cannot see the benefits that an a professional adviser can give them.

Some DIY their investments plan but many lacks discipline to carry out for long term and lacks the knowledge to review and rebalance along the way.

Maybe someday, CPF board may allow members to use their CPF monies to pay such advisory fee.; July 26, 2007 1:20 AM
Anonymous said...: To clarify with Anonymous 10.44pm about other compamies' ILPs. Single premium ILPs had 5% sales charge which was higher than Income. Now every SP has 3% and that levels the playing field..
Doctor Money's comparison is for regular ILPs. Income's regular ILP is different from the other companies" in that it is basically an investment vehicle only. The others are like Income's first regular ILP many years ago.It is a flexible plan which allows you to mimic the traditional plans;eg. you can use it to imitate a wholelife, endowment,a term plan or an investment plan. Naturally like traditional plans they carry high charges. You pay for flexibility. You can change them to whatever you want at different stage of your life cycle. This is a plan ideal for young people who want high coverage; very few term or maybe no plan can match its cheapness .; July 26, 2007 9:11 AM