Existing Life Policy

A policyholder showed a benefit illustration to me. The policy was taken by the parent during the past 14 years. The cash value now is $6,515 and the total premiums paid for 14 years is $7,630. The policy has not reached the break-even point after 14 years, which makes it a poor investment for the parent.

The benefit illustration for the next 5 years should a guaranteed cash valu e of $9,605 and a total cash value, including the non-guaranteed portion, of $13,474. The yield for the next 5 years is 0.88% (based on the guaranteed value) or 8.81% (based on the non-guaranteed value). I advised the policyholder to continue the policy for the next 5 years and hope to get the non-guaranteed value at that time, rather than to terminate the policy now for a poor cash value.

If the non-guaranteed value of $13,474 is paid at the end of 19 years, the yield for the premiums paid over 19 years is 2.57%. This is not attractive, but it is at least better than taking a loss now (based on 14 years). Although the amount of $13,474 is not guaranteed, there is the likelihood that the actual payout will be close to this figure.

Tip: It is better to avoid taking a life insurance policy (other than a term insurance policy) in the first place, but if you have already taken the policy for several years, it is usually better to continue the policy, rather than to terminate it.

Tan Kin Lian

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