Dear Mr. Tan
I got a quote for a Vivolife policy from an agent. I did my calculation. Apparently, the effect of deduction on the 25th yr is far from your benchmark. I also calculated the actual yield of return which is roughly 2%.
I wondered whether is the current market now offers this kind of policy to me? As in most of the company offering roughly the same amount of deductions as well, hence offering even lower yield of return?
REPLY
I have looked at the benefit illustraiton. As this policy requires the premium to be paid for 15 years, it is better to calculate the yield at the end of 15 years. The situation is worse than what you have calculated.
Taking the cash value at the end of 15 years, I found the yield to be between 0.2% to 1.1% The reduction in yield is 3.6% to 4.1% from the gross yield. My benchmark for the reduction in yield, to cover the cost of insurance and the investment service, is 1.5% for all durations. The deduction from the Vivo-life policy is far too high.
Is is better for you to invest in a low cost investment fund, such as an indexed fund or exchange traded fund, as explained in my book on financial planning. If you need insurance, you can buy insurance under the SAF group insurance scheme. Do not invest into any life insurance policy that provides a poor return.
For goodness sake...THERE IS NO WHOLE LIFE PLAN THAT OFFERS A DECENT RETURN FOR SAVING OR AS A SAVING VEHICLE.
ReplyDeleteIf you save you MUST get a return of at least 4% to preserve your saving's REAL value. In order for your saving to GROW the return MUST be at least 50% more or at 6% rate of return to grow REAL value.
So, for Vivolife the return is a loss of 2% or -2% in real term. Do you save to lose? Surely not, right?
The best approach is to invest separately and regularly in a RSP with low charges...low sales charge and low advisory charge of 1% AUM. This is the lowest .
Buy term to address FULLY your risk needs at lowest cost possible, eg. safra living plan.
These products are to be avoided like plague or HIV.
Whole life, limited WL like vivolife and its kind, endowment especailly anticipated endowment by the name of cash back , coupons or dividend. If you are offered them report to the nearest police station because they scams. Another toxic scam is the regular ILPs..no matter what kind and no matter from whcih company.
Another way to get best deal is to avoid salesmen and women who disguised themselves as Financial Consultants and especailly those with prefix 'executive', they are the worse as you know to get that they must con a lot of people or another worse those with MDRT, cot or TOT..these salesmen are conmen who robbed the most commission out of their customers in order to qualify.They have no conscience at all. They rob their own kind, their brothers and sister and relatives too.
They are all fakes. Yesterday, it was reported that the insurance agents' body, IFPAS, was sued for selling dud or fake degree.This isn't the first time. It was sued for copy cat the name of another association and the designation it offered some time ago.This is an association of salesmen and NOT what the name suggests.More news of fakes to come and the actors in these episodes are insurance salesmen .
I don't think there's any good yield on any par policy (WL or endowment) anymore in the market from any insurance company. It's just not possible with the low interest rate environment and the resistance to cutting commission.
ReplyDeleteIt was possible with the high interest rate environment from the 70s to 90s even after high deduction of distribution cost. The real return would be lower than nominal after adjusting for inflation but still acceptable. Now it's a sure-lose proposition unless there's a claim midway.
If you have a lump sum of S$5,000 or more, invest in a SP-ILP or unit trust or ETF according to your risk profile to begin with.
Be disciplined yourself. One of the selling tactics for hi-comm par policies is that it forces you to save a few hundred dollars monthly or face hefty penalty.
Does it make sense to pay someone S$50 in order to save S$100 monthly? Regular cash savings should be done at the banks. When a lump sum is accumulated, invest.
Don't trust the banks lightly either. Once they see that you have an investible lump sum, they'd try to sell you all kinds of investment funds and schemes. Their recommendation-of-the-day is invariably the one that comes with the highest commission, not necessarily most suitable for you.
Buy sufficient term, accident and medical insurance. Search through the websites for the best quotes. Insurance agents don't like selling these since these come with low upfront commission.
For investing, check out low commission investment portals, e.g. POEMS, Fundsupermart, Dollardex etc. Their commission can be as low as half that of banks for the same funds.
Except for buy-and-hold STI ETF, I wouldn't recommend trading shares directly for those with less than S$20,000 to put away for sometime.
That's not to say STI ETF is a sure bet anytime, but it generally averages out the market fluctuation so that you'd earn no more and no less than the market in the long run - the same principle as a par policy in fact. However, ETF can be bought at less than 1% commission, whereas par policy comes at over 200% over the first few years. I'm not kidding.