Dear Mr Tan,

I purchased this policy when I was 25 years old, until age 99. This means:

- Total 74 years to pay
- With $2,604.36 annual premium, total output is
**$192,722.64** till age 99
- Total sum assured is $500,000
- With that, "returns" of $307,277.36 is 1.59 times.

Do you think this is an expensive policy? My thought is that monthly payment of $217.03 would be affordable as income increases over the year, especially say 20-30 years later. I would be able to leave this sum with my family in the event of my passing.

MY REPLY

I used Excel to do the calculations shown below

If you die at 99 and your family gets $500,000, the return is 2.32% p.a. (this is the compound rate of return). If you live beyond 99, you and your family gets $0. All the premium disappears. There is a chance of living beyond 99, as people are living longer nowadays. If you die before 99, the return to your family is higher than 2.32%.

If you buy a term insurance policy for a shorter period, say 20 or 25 years, and pay an annual premium of $500, and you invest the difference of $2,554 to earn 5% p.a. over 74 years, you will get $1,838,038. This is 3.6 times of $500,000.

The difference goes to pay the commission to the agent and his manager and the marketing expenses and profit of the insurance company.