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Case study - continue an existing life insurance policy?
09 May 2022 (588 views)  

A policyholder bought a participating policy 36 years ago and paid an annual premium of $800. The surrender value is now $57,389. The yield earned on this policy for the past 36 years is 3.2% p.a. 

He is now age 65 yo. Should be continue the participating policy?

He obtained the revised benefit illustration from the insurance company. It showed the projected surrender value in 10 years time to be $96,681. 

He would have to pay a total premium of $8,000 for the next 10 years and receive an increase of $39,292 in the surrender value. However, the projected surrender value is not guaranteed.

I calculated the yield for the next 10 years to be 4.19% p.a using the "Rate" function in Excel. See below. 

This yield is fairly attractive. However, it depends on the future bonus, which is not guaranteed. If the investment return earned by the life insurance fund comes down in the future, the surrender value will be lower. 

If the policyholder is able to continue to pay the annual premium for the next 10 years, this policy does give a reasonable return.

This concept is explained in the book - Get Value from Life Insurance which is available here:
https://tankinlian.com/cart.aspx?ID=66

I have written a PDF book on this issue. 
https://tankinlian.com/cart.aspx?ID=8

Tan Kin Lian
 


Case study - continue an existing life insurance policy?
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A policyholder bought a participating policy 36 years ago and paid an annual premium of $800. The surrender value is now $57,389. The yield earned on this policy for the past 36 years is 3.2% p.a. 

He is now age 65 yo. Should be continue the participating policy?

He obtained the revised benefit illustration from the insurance company. It showed the projected surrender value in 10 years time to be $96,681. 

He would have to pay a total premium of $8,000 for the next 10 years and receive an increase of $39,292 in the surrender value. However, the projected surrender value is not guaranteed.

I calculated the yield for the next 10 years to be 4.19% p.a using the "Rate" function in Excel. See below. 

This yield is fairly attractive. However, it depends on the future bonus, which is not guaranteed. If the investment return earned by the life insurance fund comes down in the future, the surrender value will be lower. 

If the policyholder is able to continue to pay the annual premium for the next 10 years, this policy does give a reasonable return.

This concept is explained in the book - Get Value from Life Insurance which is available here:
https://tankinlian.com/cart.aspx?ID=66

I have written a PDF book on this issue. 
https://tankinlian.com/cart.aspx?ID=8

Tan Kin Lian