A policyholder sent the projection of his investment linked policy. I calculated the result as follows:
Annual premium: $2,160
Projected yield at end of 20 years:
Gross yield: 5% p.a.
Projected cash value: $47,400
Net yield: 0.9%
Reduction in yield: 4.1%
Projected yield at end of 20 years:
Gross yield: 9% p.a.
Projected cash value: $64,200
Net yield: 3.8%
Reduction in yield: 5.2%
The reduction in yield varies from 4.1% to 5.2%. This is excessive. The ILP is extremely costly and gives a poor return to the policyholder. The charges taken away from the policy are far too high.
If the policyholder buys a decreasing term assurance and invest the remaining savings in a low cost investment fund, the reduction in yield is likely to be 1.5%.
The difference in yield of 3% can give the policyholder about 35% more in cash value at the end of 20 years. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Lesson: Avoid high cost investment-linked plans. It gives a poor yield due to high charges.
For those who has children study in China, you may consider Chinese Yen FD 4-6%pa. Internet banking is available. Acount holder can withdraw money through ATM located Singapore island wide. In 2007,China was second world econ power after USA in terms of GDP (PPP).
ReplyDeleteMr Tan,
ReplyDeleteyou're assuming that the policy holders hang-on to their policies. If the policy holders surrender early (most do), the charges will be doubled or more.