a) the insurance company has to invest 70% of the money in low yielding bonds (to provide the guarantee), and only 30% in equity or property (which gives a higher yield)
b) up to two years of the premium is used to pay commission and marketing expenses.
Here are the yields that you can get on your savings (excluding the portion used to pay for the insurance cover):
3% - from an insurance product, after deducting marketing expenses
4% - from a no-load investment fund, invested with the same mix
6% - from a no-load investment fund, invested 100% in equity.
Here is the amount that you can get by investing $6,000 a year
Duration 3% pa 4% pa 6% pa
10 years $70,800 $74,900 $83,800
20 years $166,000 $186,000 $234,000
30 years $294,000 $359,000 $503,000
An investment fund has risk, but it can be reduced by diversification and investing for the long term.
Question: Do you want a "safe" investment, that gives you $294,000 when a "no-guarantee" investment can give you much more, say $503,000?
Lesson: Take the risk and enjoy a higher return. Avoid paying high front end charges.