Monday, October 25, 2010

Structure of a Life Insurance Policy

This article explains the structure of a life insurance policy in simple terms for a lay person. It helps you to understand the role of a life insurance policy and how to pay the right price for its benefits. More importantly, it helps you to avoid paying too much for a life insurance policy that can become a financial burden to you for a lifetime.

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3 comments:

AC said...

Thank you for highlighting the "effect of deduction" in insurance policies. I noticed most of the times, the illustration used to determine the effect of deduction is based on return of 9%, and thus the calculated ratio is smaller. Most of my policies showed about 30% based on 9% return, but if I based on 5% return, the ratio is above 50%. So which number should we look at ?

Now that I know most of my policies are not giving me good returns, what I can do ? Should I terminate them ? The IDEAL plan which I bought in 2005 from NTUC is the worst among those I had bought. The effect of decution is more than 30% for 25 years.

October 26, 2010 6:46 PM
Tan Kin Lian said...

Hi AC
Send your benefit illustration for the Ideal policy taken in 2005 to me (kinlian@gmail.com). I believe that the effect of deduction should be less than 30% at the 25 year mark. Most of the policies sold by other insurance companies have deductions of 35% to 50%. So, your statement is likely to be wrong.

October 26, 2010 9:20 PM
AC said...

Dear Mr Tan, thank you for the clarification. You have shown me the correct way to calculate the numbers. Indeed, I have made the wrong calculation. The actual number should be 24.5%. This exercise just go to show that it's too complicated for layman like me. You have given us a simple tool to compare insurance products and to assess whether the insurance agent is overcharging us. Truly appreciate your wisdom.

October 27, 2010 11:31 PM

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