Tan Kin Lian's Blog: Existing Life Policy

Saturday, August 07, 2010

Existing Life Policy

A policyholder showed a benefit illustration to me. The policy was taken by the parent during the past 14 years. The cash value now is $6,515 and the total premiums paid for 14 years is $7,630. The policy has not reached the break-even point after 14 years, which makes it a poor investment for the parent.

The benefit illustration for the next 5 years should a guaranteed cash valu e of $9,605 and a total cash value, including the non-guaranteed portion, of $13,474. The yield for the next 5 years is 0.88% (based on the guaranteed value) or 8.81% (based on the non-guaranteed value). I advised the policyholder to continue the policy for the next 5 years and hope to get the non-guaranteed value at that time, rather than to terminate the policy now for a poor cash value.

If the non-guaranteed value of $13,474 is paid at the end of 19 years, the yield for the premiums paid over 19 years is 2.57%. This is not attractive, but it is at least better than taking a loss now (based on 14 years). Although the amount of $13,474 is not guaranteed, there is the likelihood that the actual payout will be close to this figure.

Tip: It is better to avoid taking a life insurance policy (other than a term insurance policy) in the first place, but if you have already taken the policy for several years, it is usually better to continue the policy, rather than to terminate it.

Tan Kin Lian

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2 comments:

zhummmeng said...: All wholelife products hold the buyers to ransom for life until surrended. A clever ruse to make sure the insurance company receives revenue for life too. This is the reason why insurance companies continue to roll out this type of products despite the rottenness. It is lucrative. To ensure that they are marketed the companies use the greedy agents, given them high commission to target their own policyholders. They work hand in glove to rob the unwary, stupid and pretend to be smart consumers. Only greedy agents can be used because they lack conscience and ethics. They can stoop to anything and do the bidding of their ceo , even to betray their own relatives and friends.
The saddest thing is consumers cannot see through the ploy ONLY after 20 years when their mind is more lucid.
I am sure this will never end until MAS removes the greatest evil of this trade, ie the commission.; August 07, 2010 12:11 PM
Spur said...: This is a prime example of why participating insurance plans like wholelife, endowments and regular ILPs are lousy products and a real trap for consumers.

Once you signed the papers, you already lost thousands of dollars. And to even get a miserable 2.5% yield, you need to continue forking out thousands of dollars more over 20 years, come hell or high-water. Otherwise you'll not only lose $$$$ but also big opportunity cost of lost time and other opportunities. You would have been much better off putting the money in FDs over the past 20 yrs.

And for insurance agents or supporters who harp on the protection value --- do you honestly think that the coverage is adequate? That guy & his parents paying $545/year premium --- what kind of protection can you give with wholelife or endowment? At most only $10K or $20K. The unfortunate consumers kenna PWNED and CONNED by the agent liao.

As a savings it sucks. As insurance protection it also sucks bigtime. Haiz....; August 07, 2010 3:27 PM