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Dear Catherine Choong
You can read these FAQs to understand why I recommend buy term and invest the difference.
Life insurance is important for a family,but it can be low cost insurance, covering death, accidents and critical illness. I invite readers to read my FAQ to make an informed choice.
The remaining savings, invested in a low cost fund, is likely to give an accumulated value that will be more than the face value of the policy at the end of 30 years. The policyholder does not need to die or suffer a critical illness to get this face value. The invested fund is likely to produce this sum.
A higher accumulated value in an investment fund (compared to a lower cash value in a life insurance policy) will give more money for the policyholder to spend during his or her retirement years. This is an important function of financial planning that is not well served by a life insurance policy, due to its high cost structure.
Although the return from an investment fund is subject to volatility, it is not a serious matter for a long term investor. This point is covered in my FAQ. A life insurance policy with a high terminal bonus, also provides uncertain cash value, and is less transparent.
The life insurance policy gives a poor return due to the "effect of deduction". This is the huge sum that is taken away from the policyholder to pay the marketing expenses and other charges.
My general analysis is on the life insurance products commonly sold in the market. I believe that the "effect of deduction", in the case of NTUC Income, are lower than the market. It is for you, as the adviser, to tell the policyholder about this lower effect of deduction and demonstrate the value of the Vivolife product.
Someone showed me a benefit illustration for Vivolife. I was surprised that the cash value at the end of 20 years still showed a poor yield. I hope that this is an aberration, and that the yield for most other Vivolife products are better. Perhaps you can show some examples, illustrating the total premiums paid for 20 years, the cash value and the "effect of deduction" for the 20 years.
I have other point about an inflexible life insurance policy that forces the policyholder to continue paying the premiums and imposing a big penalty on early termination. This is not fair to the general public.
During the time that I headed NTUC Income, I declared high annual bonus and provided higher cash value (compared to the market), so that the policyholders who cannot continue the policy does not suffer a large penalty.
I believe that a flexible savings plan invested in a low cost fund is better for the policyholders in this modern time. Many of them are now investing in low cost unit trusts and mutual funds available from other platforms.
I hope that the life insurance industry and advisers can rise to the challenge to give good value products to the large number of people who entrust their future to us.
Tan Kin Lian
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