An elderly woman went to a bank. The relationship manager (RM) introduced her to a life insurance policy. He asked her to invest $300,000 into the policy for another 40 years.

The woman approached me for my guidance. I asked her to make a donation of $150 to FISCA. She never came back.

I hope that she did not buy that policy. It gave a yield of 0.2% p.a. for the first 20 years. If she kept the policy for 40 year, the yield would be between 2.6% and 3.9% depending on projected investment return. It is not guaranteed.

The woman is unlikely to keep the policy for 40 years. She would be senile at that time.

It is a bad investment.

If she terminated the policy during the first year, she would suffer a loss of $60,000. The surrender value would be $60,000 less than the invested sum.

The life insurance cover is negligible.

Why should the policy cost so much? It is a "rip off" policy to catch the unsuspecting buyer.

The distribution cost, which is used to pay the RM and the bank, is $30,000. Here is a person who refuses to make a donation of $150 and is not aware that she is paying $30,000 to the RM for selling her this bad investment.

Penny wise, pound foolish!

Could she invest in other safe investment to earn a better yield. Most certainly she can.

If she invest for 20 years or longer, she should invest in an index fund, such as the STI exchange traded fund. The risk is minimal. The long term yield is likely to be between 4% and 6% p.a. It is not guaranteed, but quite safe for a long term investment.