COMMENT POSTED IN MY BLOG
Whole life product advocates and especially insurance agents argue that a whole life policy is useful during old age, a time when one is most likely to contract dread illnesses.
Apart from other economic reasons, I want to show that whole life policies are hardly kept beyond age 65. Why is it not kept beyond this age, the obvious reason is many don't believe that it is necessary and many believe in self insurance, a wise idea because liquidity at a time like this is more flexible and better choice.
What if you get and what if you don't get a disease , the probability seems 50/50 but I bet it is more than 80% chance you don't get. If you do, have an H&S is enough plus what you provided for in cash as self insurance will adequately address this problem.
Maintaining a whole life policy at this age is expensive and a waste of money and self insurance is a better option.
Therefore the case for a whole life policy is weak and you are better off if you have a term insurance plus investment with better return. The chances of having a better life and retirement are best via "buy term and invest the rest".
I want to show you statistics from MAS website to corroborate my argument and my findings. If you look at the life insurance persistency from 2001 to 2007 you see a pattern. You see high decline immediately in first 2 years and henceforth persistency declines at a rate of about 4%. This pattern is seen in all the last 5 years.
If I extrapolate the rate of decline to next 20 to 30 years I can see that only about about 10% or less of life policies will in force.
Assuming a 30 year old man buys a policy, by the time he is 60 or 65, he would have terminated or surrendered his policy. This phenomenon is supported by another statistics, the surrender statistics and it has been a whopping high of about 65% compared to maturity of about 35%. In other words a lot of people surrendered their policies earlier.
What do these figures tell you? Very few kept their policies beyond 65 years old. Why buy whole life insurance if you don't keep till old age? Let me tell you, it is burdensome; cash return too low.
I have done another research earlier and posted somewhere on death claim. I found no claim beyond the magical age 65, not that no one died or no one got dread disease but no one or very few kept whole life insurance beyond this age.
Death claim median age is 45 and average claimed amount is only a miserable $45K and the highest of $200k was from a term insurance.
Conclusion: insurance is most needed during time when your responsibility is the highest and you should have enough to address the needs at that point in time. Term is the best instrument, cheap and efficient.
Do not believe what the insurance agents tells you about whole life insurance. Their argument is obvious, it is high commission for themselves and life long source of revenue and income for the insurer.
zhummmeng
This is my reply to a wholelife policyhohder to refute the myth he has about premium and cost of insurance.
ReplyDeleteDear Falcon,
It is not true that you pay the same cost you paid 50 years ago.You may be paying the same premium.This is the part everyone is silent, your beloved agent and the insurer.This is the part that makes insurer very happy but not you
because you will be seeing your cashvalue eroded by the COST OF INSURANCE called the mortality charge
The mortality charge is the same for anyone of the same age regardless of when he buys the insurance.He could have bought 50 years ago or just bought if both are of the same age.
If you hold till 85 years old you might have ALL your cash value eroded by the greedy insurer. That is why I have been saying insurers love to sell wholelife products because this guarantees them a life long source of revenue or income .
Insurance premium consists of 2 components, one is cost of insurance and the other a surplus which the company invests by throwing into the same pot of investment with the others.(this is a stupid pot where everybody's goal is treated the same). Your cost of insurance or mortality charge increases with age and it becomes a BOMB when you are at age 60 when the cost exceeds your premium. The difference is "stolen" from your cash value to make up the difference.I use the word 'stolen' because your insurance agent and company didn't tell you and ask your permission to use your hard earned cash value to pay your cost of insurance.
Falcon, go to MAS website and look at the rate of surrender and persistency. From these figures you know why it is idiotic to hold beyond 65 and many realised it is NOT to their advantage to hold.
I have been arguing that wholelife is a stupid plan because VERY FEW hold till wholelife.It gets more expensive as you age contrary to what your sincere and so called truthfull agent told you about paying the same premium.
Did you know insurers make a lot of money out of wholelife products?
They give you little protection and return and whatever they made from investment with YOUR MONEY they keep a lot for themselves and give you just as projected at the best ( now you know a bit about how special bonus kena manipulated)
The cost of term insurance especailly yearly renewable term insurance is very close to mortality charge and reflects the cost and if you terminate, your loss is not much.It makes a lot of sense , therefore, to use term insurance to address your insurance needs.
Your insurance agent has been dishonest.
isn't the limited premium wholelife help to solve the problem of high surrender ratio before age 65?
ReplyDeletefor myself, currently i estimated i need coverage for at least $250K. I opt for $50K wholelife (pay 20yrs only) & $200K term from SAFFRA.
wholelife is not bad (insured max up to 20% of your need), but depending all your protection & "saving" in it is not advisable.
Yes, my army buddy told me the same thing. In fact, people who bought insurance will, for all kind of reasons, give up along the way. My army buddy was an insurance agent. Yes, I also fell into the trap. I bought insurance from him, but gave up years ago....
ReplyDeleteShould have listened to him...
Sigh !
I don't mind giving up my whole life policies if I can find a better term alternative :)
ReplyDeleteMr. vfocus,
ReplyDeleteYou won't finish paying, you "finished" paying the premium only. You will be paying as long as you hold on to your policy.
You should ask your self this question. " Do I need a wholelife plan when I am past 65?" Is whole life plan the most efficient? Can I get a term to cover me beyond 65?
Yes, term plans can cover you beyond, but before you jump in, try to cover yourself till 65 and then decide whether to continue.The premium can be very deterrent .
If you have an H&S plan don't bother to continue.
Warning: Safra plan, LUV, and other plans that depend on membership or employment will expire when you stop or resign from your job.On top of it you pay a fee, like Safra and LUV. If you factor them, it is still worth it?...You need to consider all these.
When I ask for a projection it showed an increasing return the longer the policy is in force. This seems to be contradictory to what you are saying about the cost of insurance eating into the returns. Why is the percentage projected returns of ten years higher than one year since the cost of providing that insurance is higher and should as you said eat into the returns.
ReplyDeleteHi zhummmeng, i do like to have a bit of wholelife cover. As for H&S, i'm cover under GE private shield.
ReplyDeleteMost of my saving used for saving in bank(30%),ID7(10%),investment in shares or low cost funds (60%), therefore i believe that i need term coverage till age 65 (max), i will keep my SAFRA membership as long as possible, cheaper than country club.
Get a projection beyond 65 if you have taken up when young. But if you have taken in your 40s it will show the decline quickly.....Believe me, I studied have them. The longer you keep into your old age the cash value will be eaten up by mortality cost.
ReplyDeleteYour return will increase up to certain age and then it slows down before the decline.
Many people give up their life policies because of poor planning. For instance, many people do not keep emergency cash and subject themselves to high mortgage loans. When they are retrenched, the first thing they do is to kill their life policies. When I mean life policies I am generically refering to any insurance be it whole life, term, disability income or hospitalization benefit.
ReplyDeleteIronically it is also due to poor planning that they bought their policies. Most people just buy the policies because they were approached by relatives or friends who are agents. Rarely does people buy insurance deliberatey, intentionally with a plan in place.
Wilfred Ling
http://www.wilfredling.com
Hi zhummmeng, thks for the advise,but my idea of wholelife insurance is lifetime coverage for the event of death or critical illness.
ReplyDeletein the event of death claim, unlikely i will enjoy the benefit, except, PTD or critical illness, but pray hard it don't happen (prefer die than PTD)
Cash value is never my main concern.
It is easy for wilfred to blame policyholders for "not planning". It is not true in my case. I planned for it and intended my three whole life policies to be a cushion for my old age. I planned to convert some of them to an annuity since I can get 5% more from it as promised by NTUC Income. I want to have a choice when I am in my sixties, depending on the conditions then, to be able to make a choice. What I did not know, and the agent also did not know, is that values as said by Zhummeng, will drop as one ages. I recall seeing the projections and it got higher and higher as one ages. I am still trying to find those projections for a second look but I am quite sure when I first saw it, it shows an increasing return. I would not have bought it if it shows a decreasing return.
ReplyDeleteHi Falcon, I am sorry if i have misled you. My comments about decreasing cash value are very general.
ReplyDeleteThe rate of decrease will depend on the age you take up the plan. If you started at very young age , eg. 1 year old, the decline will come much faster and earlier and get negative before 65 years old. If you are between 25 and 40, the rate will slow down to a trickle and if you hold beyond 65 it might get negative at 70.If you are more than 40 years it is not even worth taking up. The return is so poor and not able to meet half of inflation after 20 years.
Generally one commonality for all ages is that the rate of return will slow down due to increase of cost of insurance. Again some difference between whole life and limited payment term whole life.
You may be paying same premium but the cost of insurance is the mortality charge which increases with age.
I am basing my comments on NTUC products. Others definitely worser.
Anyway, I don't recommend wholelife to take care of your protection and saving. They are not EFFICIENT. Today's products are riff off and far worser than the old ones.