I have been asked quite often on whether a specific life insurance policy taken previously should be terminated for its low yield. The right approach is to calculate the yield on the policy for the next (say) five years and to compare this yield with the yield from alternative investments, e.g. an ETF or a REIT.
This paper explains how to calculate the yield on a life insurance policy. Although a life insurance policy gives a poor yield for its entire duration, most of the expenses are deducted upfront. After the initial loss is written of, the running yield on the policy may be quite acceptable, e.g. close to 4% per annum. In most cases, it is better to continue the existing policy (although the consumers should have avoided it in the first place).
This paper explains how to calculate the yield on a life insurance policy. Although a life insurance policy gives a poor yield for its entire duration, most of the expenses are deducted upfront. After the initial loss is written of, the running yield on the policy may be quite acceptable, e.g. close to 4% per annum. In most cases, it is better to continue the existing policy (although the consumers should have avoided it in the first place).
I have seen ALL the BIs of ALL the companies and that there are a few common features.
ReplyDelete1.cost of insurance is high(COI)
2.Breakeven is too long , from 15 to 20 years and it is going up.
3.the return is measly....only equal to inflation after 30 years, assuming an aggressive 3% inflation which you have to take with a fistful of salt.Estimated inflation is about 4.5% over the long term.
My recommendation is policyholders of wholelife, limited or whatever and also endowment to cancel them right away if you have just taken up. Sacrifice the small loss.
For those older policies...clench your teeth and curse the agents and cancel them after you have a replacement with the right term and amount of coverage..No choice...your loss may be bigger but think of the high coverage now you have..isn't it is what you needed but your agent shortchanged you? Now you have peace of mind, right? Before this you have been walking with a time bomb...and if it should explode your family will have to eat grass while your agent has the commission safely in the bank and frolicking on the overseas resort beach.
Verdict: strongly recommend that you terminate your whole life and endowment and quickly embarked on cost efficient protection and saving plan by using term and RSP strategy. You can recoup your losses too in not too long.Your family is fully protected and you can dream of the retirement you want now.
Mr. Tan. continue to expose those scam wholelife and endowment products. I heard some people are beginning to see they have been short changed by the agents and the company and have complained to MAS and referred to FEDREC. I hope these cases are reported.
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