Total Cash Value Yield
Premium Gtd N-Gtd Total p.a.
10 yr $15,980 $14,050 $1,523 $15,573 -0.5%
20 yr $15,980 $18,400 $6,887 $25,287 2.2%
30 yr $15,980 $23,700 $15,723 $39,423 3.0%
The yield for the first 10 years is negative. The yield becomes positive over the subsequent 20 years due to the non-guaranteed special bonus. If the special bonus is reduced, the yield will fall accordingly. The yield on this policy is uncertain.
3 comments:
Mr Tan,
Of course the yield is negative for the first 10 yrs because this policy provides lifetime coverage. (breakeven is yr 11. Note:breakeven is the point that if the policyholder terminates the policy, he gets back approximately the total premium paid)
Future premium from age 29 till end of life (life expectancy above 80)is factored into the total premium of $15980.
You seem to focus only on the yield. You should ask the policyholder what is the purpose of the policy. If the policyholder is looking for yield, then he should not be looking at insurance.
However if the policyholder wants to get a wholelife policy for his child and does not want to burden the child with future premium, then this policy does serve the client’s purpose.
In the industry, most of the breakeven is 20 yrs or longer so this policy does seem attractive by comparison.
But if the policyholder wants to focus only on protection, you may recommend a term policy.
However do make sure that you emphasize to client that:
1. Premium paid is lost (like an expense). After 40yrs, if child is well and alive, he gets nothing back.
2. The policy does not participates in the profits of the insurance company
3. The coverage remains a flat $50k. That is, it will forever remain the same amount. Do explain the impact of inflation. How much is the true value of $50k when the child is age 60.
4. The child has to continue to pay the premium for the term, so better to link to giro. Also do ensure that the child has sufficient funds in his bank balance otherwise the policy will lapse if there are insufficient fund.
Regards
Catherine Choong
Dear Cat
The yield for the first 10 years is negative because the charges are far too high.
The same coverage can be obtained at a much lower cost through a term insurance policy. If the policyholder is asked to pay a higher premium for the coverage, he or she should be given a better yield for the higher premium that is invested for the future.
The yield on the additional premium is as important as the life protection. 95% of young policyholders do not make a death claim over 30 years. They should be given a better yield.
The life insurance company can give a higher yield by keeping its expenses low, and declaring a higher rate of bonuses from the yield of the life fund. They should not be spending thie money on lavishness, and reducing the yield for the policyholders.
To Cat, let me dismiss insurance agents' cooked up and untenable premise that the term is less suitable than whole life plan.
#1. That child doesn't need a CI insurance. CI insurance DOES NOT stop anyone from contracting CI . An H&S medical is more than sufficient at this stage of her life to take care of the expenses.
#2.Premium is tiny compared to WL. Yes it is an expense. Do you ask your insurer whether your car insurance has cash value?
#3.Why should you let the insurer invest in one "one size fits all" life fund and return miserable return?
#4.Do you think WL coverage increases over time? Then I suggest that you relook at your benefit illustration. In some cases the protection may even DECREASE and you may be paying for a reduced sum assured. I know you are a very experienced insurance saleswoman but unfortunately like many other salespeople either you don't know or choose NOT to reveal to your client of this reduced sum assured.
#5. Yes the coverage is flat but remember with the money you can have a MUCH LARGER SUM ASSURED, unlike with a WL the poor customer has to accept a low coverage and get only half peace of mind.
#6 The child has LESS TO PAY and is easy with money from the good return coming from the investment it is no problem.
#7. When it is lapsed it is because client has no money .If it is lapsed you can get another one. If your argument is one may pay higher premium it is true even for WL. Again either you don't know or you choose not to know.
Miss CAT, your arguments are flawed,and like all others you are bent on selling WL and ignore the customers' needs. Your argument is full of contradictions. Because Mr. Tan has demonstrated that return is poor you decided to emphasise protection. But in another posting you were smug about the return and claimed 4% for the product. And now it seems unimportant and protection is more important. Why twist?
Another point I like to demolish is that you promote that everyone will keep WL beyond 80 years old.Please check claim statistics. Most people will surrender at 60 and your company will encourage to convert to annuity. So what whole life insurance agents are promoting?
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