Tan Kin Lian's Blog: Haphazard projections

Thursday, April 10, 2008

Haphazard projections

Dear Mr. Tan

I have two whole life policy proposals (from NTUC Income and Great Eastern Life).Both have sum assured of $100K and premium is payable for only 20 years to enjoy whole life coverage. I am thinking of buying the policy for my baby.

I am attracted to Great Eastern's higher annual reversionary bonus rate of $10 per $1,000 sum assured + 2% attaching bonus (compared to Income's $7 per $1,000 sum assured, compounded at 0.7% p.a.). This could explain why Great Eastern's total projected protection value of $416,000 at age 65 is much higher than Income's $263,000.

Great Eastern also has higher terminal bonus and surrender bonus rates than Income. However, Income has a higher guaranteed surrender value of $65,000 at age 65 (compared to Great Eastern's $54,000).

My guess is that this shows that Income is more confident of earning a higher yield compared to Great Eastern? However, Income's total projected surrender value of $171,000 at age 65 is much lower than Great Eastern's $226,000. Under "Reduction in Yield", Great Eastern's projected reduced yield of 4.43% at age 65 is higher than Income's 3.61%.

This is very confusing. On one hand, Income is confident of guaranteeing a higher surrender value at age 65 than Great Eastern, but Income's projections for total surrender value and total protection value are much lower than Great Eastern's.

Would greatly appreciate your advice on whether I should go for Income's Vivolife or Great Eastern's FlexiLife20. Also, can you help recommend a reliable and experienced insurance agent from Income?

REPLY

I am not able to advice on the merits of these two proposals. I do not advice buying a life insurance policy for a child.

Some life insurance companies adjust their bonuses to show attractive values at certain durations. They are not guaranteed and do not give consistent values. I do not trust these types of haphazard projections.

My advice is to buy a Term insurance policy on your own life and to invest the difference. See this FAQ:
http://www.tankinlian.com/faq/savings.html

7 comments:

Anonymous said...: The fact that you said you have 2 policies , each of $100k, presumably for you and your wife. Now comes the baby. Maybe I also presume that you have these policies only. If you are, then you should be looking at your own(bread winner)as first priority then at other areas like your baby.
Yes, your baby needs a cover but it should be a H&S cover as priority.
After meeting the needs of the "golden goose that lays the golden eggs" then maybe other areas like your baby.
As said, whole life plan, especially limited premium plans are dumb plans becuase they limit your coverage. As you can see, you need more than $100K and yet you are being lulled into a false sense of security. Maybe this is your insurance agent's idea. Let me tell you , you need a cover of 3-5 years of annual salary for CI and XXXXXX$ amount to take care of your dependents. Whole life or limited premium plans guarantee that you NEVER be able to achieve this.
Go and get term. Do what is right. The comparison is a waste of time. Both plans from the 2 companies are designed to confuse the buying public. If the companies are really concerned for people they would design straight forward plans. Between the 2 evils , if you die die must, then go for GE. NTUC has gone to the dogs. The 98% surplus used to be for the policyholders is now into 'don't know where" , maybe doesn't exist at all.It is manipulating the bonus.
If you are really concerned for protection and saving, separate them and you get high protection and return.
You don't need for whole life. I repeat , no need for whole life.By the time you hit 60 , you will be seeing a different picture. You will be seeing a frail old man needing lot of money to retire.FOR MEDICAL JUST MAKE SURE YOU HAVE AN H&S PLAN. Ntuc believes it, as you can see the option to convert to annuity is offered to you when you are 60 years old. So what wholelife coverage they tell you you need it. It is contradiction, isn't it?It is bull. Don't be fooled by the company and its insurance agents.It is the greatest conspiracy.; April 10, 2008 10:33 AM
Anonymous said...: An experienced agent is not good enough. You need an HONEST & COMPETENT ADVISER and not a salesman, to guide you and to help you whether whole life and limited premium or a term is SUITABLE
and that you will be able to meet your needs.
What are your needs?
Without knowing your needs no solution is adequate . This is the most important thing to do first the rest should fall into place.; April 10, 2008 1:42 PM
Anonymous said...: Why should you wait for the terminal bonus?It may or may not be given.
Why should you wait for so long to see the large bonus which is not guaranteed? You must as well invest yourself and take charge.
Ir is too risky to wait for so long for the last cash flow.; April 10, 2008 6:22 PM
Anonymous said...: I do not advocate whole life policies. But if you insist, I suggest you compare only the guaranteed portions.

Do not consider the non-guaranteed portions because they are based on unrealistic reversionary and terminal bonuses.

Readers of the blog. Let us let the poster decide. Afterall if he is rich enough, why should we stop him from getting a whole life?; April 10, 2008 7:45 PM
Anonymous said...: Whole Life policy have its advantages:

2 things are guaranteed in life : death and taxes

a. death
whole Life policy gives your beneficiary a financial incentive look after you at old age.

b. taxes
whole Life policy can be used to pay off estate duty or any outstanding liabilities incur after you die. E.g. hospital bill, pay off outstanding car loan.

if money is not a problem at old age, the terminal bonus can be used to make a donation to your charitable organization to honor your passing.

its a very neat instrument to take care of things. It should be part of your insurance portfolio.

you should not be too concern with terminal bonus.; April 10, 2008 9:05 PM
Anonymous said...: albert , you are living in yester years. Death is ceertain but not tax.
Unless, you have properly planned wholelife is waste of money. you have not idea how loaded is the whole life plan when you hit 60. How amny are lucky to be able to bequeath to the next gen. it is a neat instrument for the insurance agents but not people in general. You read too many books by insurance agents.
you don't need wholelife to take care of after death liabulities. you need a good and qualified adviser to plan for such needs.; April 10, 2008 10:13 PM
Anonymous said...: Comments on the comments:

I agree with Mr. Tan and the first anon poster @10:33. Get a term policy on your life, not your child's, and invest the difference.

Some people can think of many fanciful ways to use the money from whole life policies... but don't forget the primary purpose of insurance: To insure your dependents immediate needs against death and disability.

Someone listed the many "uses" of whole life policies. I think it is absolute nonsense when you try to use whole life plans to pay for hospital bills (what happened to the H&S plans?), estate duties (which has been abolished recently), donation to charity (do you have to wait till you die to donate?), etc. Such activities can easily be done by other instruments such as shares, fund investments, property etc.

Get the product for the specific purpose that it was intended.

R.; April 11, 2008 3:10 AM