Wednesday, October 21, 2015

Take a loan from a policy

Mr. Tan,
Is it a good idea to borrow money from a life insurance policy that has accumulated a cash value? Or is it better to surrender the policy and take out the cash value?

Most life insurance policies give you a yield of 2%. If you borrow money from the policy, you have to pay an interest rate of 5% or even higher.

If the amount of loan is $10,000, the difference between the interest that you pay and the increase in the cash value is $300 a year.

If you need money for the short term and can repay back within 1 or 2 years, it is all right to take a loan on the policy.

If you do not expect to repay the loan within two years, it may be better for you to surrender the policy and take out the cash value.

But, you should buy term insurance to provide the life insurance cover before surrendering an existing policy.


Anonymous said...

Taking a loan from your policy is an intended feature of all par insurance products . It is designed so that the insurers can make more money out of you. Why it is so? isn't this a saving plan touted by your insurance agents? Why borrow your own money when it is yours? Hahaha, consumers , please wake up. it is NOT your money until you terminate the policy which is the BEST option. Imagine paying the insurance company 5.5% to 8% to borrow your own money. It is a scam designed or money lending outfit in disguise.Shadow banking?
This wouldn't have happened if you use the buy term and invest the rest strategy. Whatever money you have accumulated is all yours to take any time.
Another point is when you make a claim the cash value isn't paid to you together with the sum assured? But if you have borrowed this will be deducted from your claim.You see, which ever way the insurer wins.
Why? did your agent explain to you ?
Another point is your agent didn't do a proper job; in fact he violated a golden rule of financial planning which will be strictly enforced next year, ie advising you to set up a must have emergency fund to provide for circumstance like this when you need cash.Your agent is not competent and he or she should be hauled up by MAS for violation of the Balanced Score Card, a standard by MAS/LIA to weed out the incompetent and to prosecute the agents for 2 offences or infraction.\
If you want you can lodge with MAS about your case which lands you in a situation like this, in need of emergency cash.

Anonymous said...

When you take a loan it is as good as saying good bye. It is better to terminate because paying 5% doesn't sense when the insurer pays you not even 2%. If you cannot pay quickly your debt will be compounded. It is like the company is investing in you.
The best is not to buy rotten par insurance products where the terms are stacked against the buyers.

Anonymous said...

The sooner the consumers embrace buy term and invest the rest they will be better off when RBC2(risk based capital) is implemented in 2017.
Because if RBC2 kicks in in 2017 all those life insurance products that have cash value will see the annual reversionery bonus removed or reduced. This means the cash value is uncertain or risky and depends on the life fund performance. This is as good as investing on your own, in ILPs, unit trust or ETFs which also carry risk but with higher return. If the insurers want to continue to give reversionery the consumers must expect a lower return, worser than now which is already low.
By the way, because the agents only sell products with high commission the insurers will continue to roll out these par products which will carry high commission to embolden the agents to peddle/push them with ethics flushed into the their CEO's toilet bowl.Beware of this, they will say and lie only the good things but suppress the downsides.
As consumers , if you don't change you regret when your retirement comes you will see your funds go up smoke.

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