Sunday, December 05, 2010

Pay premium for the whole of life

The insurance agent says that you need whole life insurance, because the cash value is so poor that you need to continue paying the premium and be insured for the whole of your lifetime.

If you buy a 25 year term insurance and invest the savings in an indexed fund, you can accumulate sufficient savings over 30 years to stop your life insurance policy. You would have accumulated sufficient savings that will be more than the sum assured. You will not need life insurance any more.

Remember, if you listen to the bad advice of an agent, you will certainly need whole life insurance, because you will never be financially independent. But, if you invest your savings in an indexed fund, you do not need life insurance after 30 years!
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3 comments:

zhummmeng said...

I notice in today Sunday Times ,one patrick lim is a fan of WL and he seems to harp that term can lapse. Is he saying that WL cannot lapse? Show to him WL in MAS website how many WL lapsed within first 2 years. Is this 'can lapse' argument valid point against term?
In today's context with technology and prompt service policyholder is often alerted if premium isn't paid, right? if the policyholder cannot pay and if he is a healthy what is the big deal and what is the cost of lapse? he can buy another one or he can revive the old term if he can show continuity of insurability.
Now consumers must be educated that whatever he pays for the WL the component of the insurance cost is NOT returned or refunded like term plan which has 2 components too except that in term the excess is also invested to pay for the future increased mortality cost. The cash value in WL is policyholders' money paid in excess premium and invested by the insurer for him.
Both term and WL have similar structure, ie 2 components. In WL the excess premium is invested to pay for the increased mortality cost in the future and to accumulate as cash value. Whereas in term the premium , similar to WL goes to pay for the mortality cost and the SMALL extra premium is invested and enough to pay for the future increased mortality cost and NOT accumulated as cash value.
The difference is term premium is low and NO PROVISION FOR CASH VALUE whereas WL's premium is high to provide for mortality cost and saving. The mortality cost is an expense.
Mortality cost is considered revenue or profit to the company after each year. Imagine a WL kept for whole life.It is profit for whole life to the insurance company. Now you know why insurance companies like to sell whole life products? And when the policyholder is old imagine the huge mortality cost and the profit to the company.The profit is GUARANTEED and is a stream of income to the company.
The companies don't tell you and neither the insurance agents. The suckers are the consumers.

December 05, 2010 6:44 PM
Andy Wang (Financial Consultant) said...

I am not agree with you , if you invest in the market, the risk is high. if the market went down, all you investment will become a dream. then at that time you are retire already. so it is very risky. whole life insurance policy is still a good option for covering the 30 dread disease.

December 05, 2010 8:53 PM
zhummmeng said...

wang,
even the market crashed the reminder value is still much higher than the cash value of whole life insurance plan.This is the worse scenario and the probability of a crash is 1%
I wonder you know your stuff or not.
Hope you are not an adviser.You are likely an insurance salesman because you talk and reason like all insurance salesmen using baseless scare tactic to frighten your customers into buying whole life.

December 05, 2010 10:39 PM

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