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Continue the investment linked policy?
26 Oct 2021 (1094 views)  

QUESTION FROM A POLICYHOLDER
20 years ago, I bought a whole life investment linked policy for my daughter. The agent said it was best time to buy insurance when you are young as its cheaper.
 
However, from the 2021 benefit illustration which I recently requested,  I found this statement to be false for the following reasons:  

a) The mortality charges increases each year.   

b) The cash value after 20 years is  $35,963  which is the return from the investment.  In another 20 years, the policy will be worth nothing because the mortality charge increases with age and the investment returns will be less than the mortality charge. 

It seems I was recommended the wrong policy. Is it better for me to surrender the policy and buy another policy which can insure insure her for life at today’s prices for the future"


REPLY BY TAN KIN LIAN
You have paid an annual premium of $1,320 for 20 years and have obtained an estimated surrender value of $35,963.
This gave an annualised return for the past 20 years of 3.13%. 
This is the net return after paying for the mortality charge and the marketing and administrative expenses of the insurance company.
This return is typical for a life insurance policy.
It is not a great return, but it is acceptable.

You expressed concern that the cost of insurance increases with age. 
This premium structure is acceptable.

When the policyholder is young, the premium is low. 
This allows a large part of the premium to be invested.

As the policyholder gets older, the cost of insurance increases.
However, the increase will come at a high age, say after the policyholder is 50 years.

By that time, the surrender value of the policyholder would have increased to a substantial sum.
It is possible at that time to request for the insurance sum to be reduced to a nominal amount, for example to $10,000 instead of $100,000.

This will reduce the cost of insurance, even though the rate may have increased with age.

To know whether you are getting a good deal from this policy, compared to another policy offered by another insurer, you have to compare the following:

a) The cost of insurance for each age
b) The charges for marketing and administration for each year

This comparison should be done before you buy the policy by looking at the proposals submitted by several insurance companies.

At the present time, it is probably better for you to continue the policy for the following reasons:

a) You are probably getting a reasonable return each year (probably more than 3%)
b) You do not have a better option to invest the money or to buy the replacement insurance.


Continue the investment linked policy?
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QUESTION FROM A POLICYHOLDER
20 years ago, I bought a whole life investment linked policy for my daughter. The agent said it was best time to buy insurance when you are young as its cheaper.
 
However, from the 2021 benefit illustration which I recently requested,  I found this statement to be false for the following reasons:  

a) The mortality charges increases each year.   

b) The cash value after 20 years is  $35,963  which is the return from the investment.  In another 20 years, the policy will be worth nothing because the mortality charge increases with age and the investment returns will be less than the mortality charge. 

It seems I was recommended the wrong policy. Is it better for me to surrender the policy and buy another policy which can insure insure her for life at today’s prices for the future"


REPLY BY TAN KIN LIAN
You have paid an annual premium of $1,320 for 20 years and have obtained an estimated surrender value of $35,963.
This gave an annualised return for the past 20 years of 3.13%. 
This is the net return after paying for the mortality charge and the marketing and administrative expenses of the insurance company.
This return is typical for a life insurance policy.
It is not a great return, but it is acceptable.

You expressed concern that the cost of insurance increases with age. 
This premium structure is acceptable.

When the policyholder is young, the premium is low. 
This allows a large part of the premium to be invested.

As the policyholder gets older, the cost of insurance increases.
However, the increase will come at a high age, say after the policyholder is 50 years.

By that time, the surrender value of the policyholder would have increased to a substantial sum.
It is possible at that time to request for the insurance sum to be reduced to a nominal amount, for example to $10,000 instead of $100,000.

This will reduce the cost of insurance, even though the rate may have increased with age.

To know whether you are getting a good deal from this policy, compared to another policy offered by another insurer, you have to compare the following:

a) The cost of insurance for each age
b) The charges for marketing and administration for each year

This comparison should be done before you buy the policy by looking at the proposals submitted by several insurance companies.

At the present time, it is probably better for you to continue the policy for the following reasons:

a) You are probably getting a reasonable return each year (probably more than 3%)
b) You do not have a better option to invest the money or to buy the replacement insurance.