Tan Kin Lian's Blog: Keep your existing life policy

Wednesday, June 16, 2010

Keep your existing life policy

Hi Mr Tan,
I bought a poilcy in 1998 to cover critcal illness for 100k. I pay $2200 yearly ( $1600 and $600 for the rider) under a Prime Life policy.

I have to pay till the end of time (i.e. death) for this coverage. Recently was shown another policy which I only pay 20 yrs ... for about the same coverage.

It is strange that the investment outlook was better 12 years ago compard to now and interest rate was much higher, and yet the insurance company can introduce a better produuct now..

If I terminate the plan, I will lose 10k.... but if I keep paying I will breakeven estimated at year 25. Should I change to the new policy?

MY REPLY
My advice is: never terminate an existing life policy to buy a new policy. You will be paying the high upfront cost all over again.You are right that it is not a good idea for the consumer's point of view. It is sad that the insurance agent want to earn commission at the expense of the customer, by asking the customer to switch to a new policy.

I have explained the reason in my book, Practical Guide on Financial Planning. I hope that you have bought it and will read it. Also, you can introduce my book to your family and friends and encourage them to read it. The book can be bought at www.easysearch.sg/ishop

6 comments:

Anonymous said...: If you post the names of the two policies (old and new), public might be able to tell you where's the catch from the new policy.; June 16, 2010 4:25 PM
Anonymous said...: The new product is NOT better..There is no way to be better.Cost of operation has gone through the roof how can the new product be better. Unless the agent wants to con you.I beleive he or she wants to con you. Stay away.. Hold your old policy until 60 or 65 when you can cancel and self insure, ie invest the premium as if you are still paying.; June 16, 2010 4:50 PM
Tan Kin Lian said...: Reply to 4:25 PM

My comment apply generally to all policies, and not to the specific two policies. So, consumers should be aware and not fall into the trap of terminating an existing policy to buy a new policy, just because the premium is payable for a shorter period.

Remember, that the premium for a shorter period will be higher, so the total premium is still the same. Avoiding take a new policy, as you have to incur the upfront cost all over again (and it can take away 1 to 2 years of your savings! ); June 16, 2010 6:00 PM
retired at 52 said...: If your policy is "with profits"
then perhaps you might want to consider using it to pay for the annual premiums. It means you will get less on maturity but at least you do not come out any outright cash.
Also consider removing riders that may not suit your needs anymore, or propose to the insurer to let you have the rider(s) for free or reduced payment.

The purpose is to reduce recurring payments to them and allow you to have more cash in hand without foregoing coverage.

In any situation: do not terminate until you have considered all options.

I have a Financial Guardian with coverage of 100K and some riders.
I have been paying the same amount as $2200 annually. Until they had problems and offered me to use my accrued dividends ( means=with profits) to pay for all future premiums. I accepted it and it will run out in about 2 years time ( since 2005 )when I will have to pay outright cash again. I have also removed 1 rider and that has saved me $120 annually.

Its a "no choice" situation, as the surrender value is only $45K+
( which is the amount of premiums paid $2200 annually since 1990.)
I am now 54 years old, jobless and plan to try paying the premiums as long as I can.. otherwise.. total loss.

How did I get this plan?

The usual story: a friend needed to meet his target..

Where is he now?

Long dissappeared! ( i suspect he is driving a taxi now )

I do not blame him.

I reccommend people visiting this blog to consider buying insurance and seriously consider reading Mr Tan's book.

Best wishes to all... enjoy the world cup! its not the end of the world!!.... yet.; June 16, 2010 6:01 PM
Tan Kin Lian said...: For people who bought a whole life policy which requires premium to be paid for a lifetime (i.e. until death), there is no need to worry.

You can stop your premium payment at any time, and convert the policy into a paid up policy (for a proportionately lower sum assured) or surrender the policy for its cash value.

In my case, I have surrendered a few of my whole life policies for its cash value and have got a decent cash value.

Never stop a policy to buy a new policy. Do not listen to any agent who give this bad advice.; June 16, 2010 6:05 PM
Anonymous said...: Don't fall for the limited payment policy.. it is a trap . In fact it is a scam. You pay more upfront of the future years. The insurer has your money earlier which is the present value of your future premiums.
Remember this concept of time value of money. A dollar today is worth more than the dollar tomorrow.
Don't trust insurers and insurance agents anymore.. They are not truthful. Ask them about this.; June 16, 2010 6:17 PM