Someone sent me the Benefit Illustration of a new policy called the Cash Cow and asked for my views. This policy requires premium to be paid for 10 years and the policy can continue without any further premium payment.
I compare the surrender value under the Cash Cow policy at the end of 10 years and 20 years with the same amount invested in the STI ETF, assuming the same yield of 3.75% and 5.25%, and obtained the following amounts:
The payout from the STI ETF is at least 50% higher than the cash cow, assuming the same interest rate earned.
The life insurance cover provided by the Cash Cow is very low, so the cost is probably less than 1% of the premium that is being saved. The Cash Cow gives a poor return, compared to an investment in the STI ETF.
I compare the surrender value under the Cash Cow policy at the end of 10 years and 20 years with the same amount invested in the STI ETF, assuming the same yield of 3.75% and 5.25%, and obtained the following amounts:
The life insurance cover provided by the Cash Cow is very low, so the cost is probably less than 1% of the premium that is being saved. The Cash Cow gives a poor return, compared to an investment in the STI ETF.
This "new policy" is similar to the "old policies" issued in the past. It has the same cost structure and takes away about 40% of the accumulated premiums. It is give some touch-up and a new name, "Cash Cow", but does not give a better deal for consumers.
ReplyDeleteI advise consumers to apply the same approach as shown above. Use Excel to calculate what is the amount that you would get if you invest the sum on your own, instead of buying an insurance product.
It does not matter if they have given the new product an attractive name.
Mooo..mooo..who is the cash cow?
ReplyDeleteI have milk but no cash.I am milch cow.
Heee heee, So, who are really the cash cows? mmmmm ahhhaa
Must be policyholders with hard earned cash from working behind McDonald fast food counter.. Poor policyholders...
You see...You didn't want to attend Mr. TanKL's financial planning talk now you have become cash cows to insolent..(oop have I spelled correctly the word insurance?)cant' get any plainer Ingrissh) agents. The agents retire with lots of cash from you while you slog until you become old cows..
It's from TKL's blog we learned how to distinguish between insurance and investment, and the two could never meet.
ReplyDeleteAnd Banks like DBS are roped in to pull wool over their clients' (Banks') eyes to sell such short changing insurance products to them.
The Banks and Insurers are such good bedfellows, cunning as ever to make a buck out of us.