Switching to a limited payment whole life policy

In the past, many people bought a whole life insurance policy. It provides life insurance cover for the whole of life and requires the premium to be paid for the whole of life. It has an option for the policyholder to terminate the policy and receive the cash value, or to stop the premium payment and receive a paid up value (payable on death). This option is usually exercised at an older age, when the policyholder has retired from work.

Take a hypothetical example. The policyholder insures for $100,000 and pays an annual premium of $2,000. After 30 years, he can terminate the policy and receive a cash value of (say) $75,000. Alternatively, he can stop the premium payment and continue the policy for a paid-up value of (say) $95,000, inclusive of bonus. The paid up value is payable on death.

Some insurance agents are unethical. They approach their existing policyholder and tell them that their company has introduced a new whole life policy that requires to be paid for only 20 years. They advice the policyholder to terminate an existing whole life policy and take up the new policy. They did not tell the policyholder that the existing policy already has the option to convert the policy into a paid up policy at any time.

If the policyholder is presented with a proper analysis of both options, the policyholder would have found that it is better to continue with the existing policy. However, the policyholder is usually presented with misleading advice to switch to the new policy. This bad advice is in the self-interest of the agent and is against the interest of the consumer. The insurance agent is able to earn a large commission  on the new policy that has been sold.

If you have been given this type of wrong advice, you can write to me at kinlian@gmail.com

Tan Kin Lian