High reduction in yield

A life insurance company in Singapore specialised in selling investment linked policies (ILP). They also advertised regularly to improve their corporate image - as caring for their customers.

In my book on life insurance, there is an example of a typical policy that is sold by this insurance company. The projected cash value based on an investment yield of 5% gives a net yield of 1.2%. The reduction in yield is 3.8%. Based on an investment yield of 9%, the net yield is 4.8%, giving a reduction of 4.2%.

Any investment that takes away more than 1.5% in yield (to provide the investment service and insurance coverage) is bad for consumers. The reduction of 4% is far too much.

The difference in payout at the end of 25 years, based on a reduction of yield of 1.5% (which is far) and a reduction of 4% (which is far too much) is 40%. If your cash value at the end of 25 years is $200,000, you should be getting $280,000 under a fairer contract. Most consumers do not even know the difference! The insurance agent does not tell you about this.

You can find a few examples of this type in my book, Get Value from your Life Insurance.