Dear Mr. Tan
Presently I am paying $x a month premium for a coverage of $Y. I am thinking of terminating the policy but there is a penalty if i cash out now. What is your advice on this? Do I wait till the 6th year whereby there will be no penalty to terminate the policy?
REPLY
You can ask the insurance company to tell you the following:
a. what is the cash value of the policy now?
b. what is the amount of penalty on terminating the policy now?
c. what is the total premiums paid up to now?
d. what is the future premiums payable in the future, until the end of the 5th year?
e. what are the charges deducted from the premium payable until the end of the 5th year?
f. what is the expected cash value at the end of the 5th year, assuming that the investments earn a gross return of 5% per annum
With the above information, it may be easier for you to make a proper decision.
Lesson: Get the relevant figures to make the correct the correct decision.
You should also consider why you are terminating this coverage. Is it no longer needed? Will you need coverage again in the future, if so, then you may want to consider keeping it, as your premiums will increase if you want to buy the same face amount several years from now (as premiums increase with age).
ReplyDeleteIf you are having trouble paying the premiums, but still need insurance, what about reducing the face amount? That way you still have coverage (though at a smaller amount), your premium reduces, and you keep your insurability.
The other option is to look at having the policy become Reduced Paid Up. This is using your cash value as a single premium to buy insurance. It will be at a smaller face, but you will not have to pay any premiums. You probably do not have enough cash value at this early duration of the policy though.
Have your needs really changed that much in the past several years that you no longer need the insurance? Redo your Needs Analysis before making any major decisions.
Jill