Comparing whole life and term insurance

Lorna Tan (Sunday Times Money Page) gave a bad comparison of whole life and term insurance. The whole life policy insuring $500,000 cost nearly $11,000. She said that the term insurance policy (insuring up to age 99) cost $3,300. This is the line of reasoning used by insurance agents, and in a dishonest manner, to get people to buy whole life insurance.

The proper comparison is a 25 year term insurance policy, where the annual premium is $800. The balance of $10,000 can be invested in an indexed fund to earn 4% or more over the next 30 years. It will produce an accumulated savings of more than $500,000. By that time, there is no need for life insurance - as the accumulated savings is more than the sum assured!

By buying a whole life policy, the consumer will have a cash value that is 40% to 50% less than the accumulated savings. Why give so much of the savings away in a whole life policy?

Tan Kin Lian