A consumer sent to me the benefit illustration of a universal life policy. I found the features of this policy to be as follows:
1. The policy requires an investment of a lump sum of $186,000
2. The distribution cost of the policy is $32,000. This is the money that is taken from the premium to pay commission to the agent and the profit of the company. It is a large sum of money to give away.
3. There is a guaranteed interest rate of 3% per annum, but I am not sure how safe or long is the guarantee. In any case, this is not really attractive, especially after considering the deduction of the distribution cost.
4. The policyholder has to incur a monthly expense charge of $500 or $6,000 a year. This seems to be rather high.
5. There is a monthly deduction for the life insurance cover at a rate that is stated in the policy data. This is not shown in the benefit illustration. I am not sure if this charge is reasonable or high.
6. Based on the benefit illustration, the cash value based on guaranteed interest rate of 3% per annum actually decline over the years. The deductions are higher than the guaranteed intereset of 3% giving a negative return.
7. The cash value under the projected interest rate of 5% will show a gain on your investment after 6 years. This projection (which is not guaranteed) is unrealistic.
See Practical Guide on Financial Planning
If I were the agent getting a cut of the distribution cost, I would be laughing my way to the bank. Guaranteed. Immediate.
ReplyDeleteUniversal Life(UL) is some kind of single premium traditional wholelife .There is another scam product known as Variable Universal Life(VUL) which is similar to regular ILPs.
ReplyDeleteYou see how clever insurance companies are in designing scam products under the guise of traditional insurance.
BTW these products are meant to con the HNWIs.. Let them be conned.They can afford.
The problem is non HNWIs with substantial life saving kenna conned instead. Very sway, hor.
What kind of policy is this? Is it portable? You can carry on with this policy even if you leave the country?
ReplyDelete