Monday, October 17, 2016

Yield on Life Insurance Policies

A policyholder of NTUC Income took two policies 30 and 22 years ago. He has now stopped working and asked me if he should continue these two policies. He does not need the life insurance cover any more, as he has provided adequately for his wife and children.

I asked me to get the benefit illustration for these two policies. I take the cash value now, the premium payable for the next four years and the projected cash value after another four years. The yields on these two policies were 5% per annum.

If he is able to continue paying the premium, he should continue the policies for the next four years to enjoy an attractive yield of 5% and "free" life insurance cover.

Lesson: Do a forward projection of the yield on your life insurance policy to decide whether to continue to termination the policy.

I also calculated the yield for these two policies to be 4.5% p.a. and 3.8% p.a. respectively. These two policies also provided substantial life insurance cover during the past years. He was able to enjoy a good yield and "free" life insurance cover.

I have seen the benefit illustration for several types of policies that are sold by NTUC Income today. The yield are much lower that the yields in the past.

Lesson: What was good in the past may not be good in the future. It depends on the situation from time to time. Study the benefit illustration and understand it. It will allow you to make an informed decision.

It is better for policyholders to invest in the index fund (STI ETF) to get a much higher return. They can buy term insurance to provide the life insurance protection.

1 comment:

Anonymous said...

do u know the new management of ntuc has shamelessly used your good return past record as their backside skin? worse, they are using it to misrepresent their future return. MAS should be notified of this.

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