Dear Mr. Tan
I am offered a whole life policy with premium of $2,053 payable for 15 years. At the end of 40 years, I get a cash value of $114,000. It represents a reduction of 33% from the accumulated premium of $171,000 (based on 5.25% yield). Is this a good deal?
REPLY
The reduction of 33% appears to be reasonable. I have seen another policy, where the reduction is 46%.
However, I am not sure if you can rely on cash value of $114,000. Some insurance companies show high terminal bonus at the longer duration to make the cash value look attractive. They know that most people do not keep their policies so long. If they terminate the policy earlier, they get a poor return.
Even if the policyholder keep the policy for 40 years, they may find that the insurance company can reduce the cash value, as the terminal bonus is not guaranteed.
Tuesday, August 26, 2008
Whole life policy with premium for 10 years
Dear Mr. Tan,
I am 24 years and pay a premium of $2,500 for 10 years to be covered for $80,000 for death and critical illness for life. The cash value at 65 is $89,000. Is this a good deal?
REPLY
If you invest the 10 years of premium to earn 5.25% (which is the same rate used by the insurance company to project the bonus, you will get a total amount of $164,000 when you are 65. The cash value of $89,000 represents a reduction of 46% from the amount due to you. I consider a reduction of 46% to be too large and the policy gives you a poor return.
I am 24 years and pay a premium of $2,500 for 10 years to be covered for $80,000 for death and critical illness for life. The cash value at 65 is $89,000. Is this a good deal?
REPLY
If you invest the 10 years of premium to earn 5.25% (which is the same rate used by the insurance company to project the bonus, you will get a total amount of $164,000 when you are 65. The cash value of $89,000 represents a reduction of 46% from the amount due to you. I consider a reduction of 46% to be too large and the policy gives you a poor return.
Joke: statements of motor accidents
> I was thrown from my car as it left the road. I was later found in a ditch by some stray cows.
> I had been learning to drive with power steering. I turned the wheel to what I thought was enough and found myself in a different direction going the opposite way.
> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.
> I had been learning to drive with power steering. I turned the wheel to what I thought was enough and found myself in a different direction going the opposite way.
> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.
Monday, August 25, 2008
A fair reduction in yield
If you invest $5,000 for 30 years to earn a yield of 5%, you will receive $332,000 on the end of the period. This is an attractive investment, if the average inflation rate during this period is less than 3%.
If you invest in a life insurance product, you are likely to get an estimated yield of about 2.5%, giving $220,000 at the end of the period. The reduction of 2.5% in yield works out to $112,000 or 34% of the maturity sum of $332,000.
The actual cost of the life insurance protection is estimated to be 5% of the maturity sum. The remaining 29% in charges goes to pay commission to the agent and the expenses and profit of the insurance company.
I consider the reduction of 34% in maturity sum or 2.5% in yield to be too high and that the life insurance policy gives a poor deal to consumers.
A fair deduction should be 20% of the maturity sum, instead of 34%. This is used to provide the cost of insurance protection (5%) and the expenses (15%) for marketing and administration.
A reduction of 20% in the maturity sum over 30 years amounts to a reduction in yield of 1.4%. In the above example, the policyholder will get a return of $266,000 instead of $220,000.
Lesson: if the reduction in yield is less than 1.5%, the policy is giving a fair return (as it includes the cost of life insurance protection). If the reduction in yield is more than 1.5%, the policy is giving a poor deal to the consumer.
If you invest in a life insurance product, you are likely to get an estimated yield of about 2.5%, giving $220,000 at the end of the period. The reduction of 2.5% in yield works out to $112,000 or 34% of the maturity sum of $332,000.
The actual cost of the life insurance protection is estimated to be 5% of the maturity sum. The remaining 29% in charges goes to pay commission to the agent and the expenses and profit of the insurance company.
I consider the reduction of 34% in maturity sum or 2.5% in yield to be too high and that the life insurance policy gives a poor deal to consumers.
A fair deduction should be 20% of the maturity sum, instead of 34%. This is used to provide the cost of insurance protection (5%) and the expenses (15%) for marketing and administration.
A reduction of 20% in the maturity sum over 30 years amounts to a reduction in yield of 1.4%. In the above example, the policyholder will get a return of $266,000 instead of $220,000.
Lesson: if the reduction in yield is less than 1.5%, the policy is giving a fair return (as it includes the cost of life insurance protection). If the reduction in yield is more than 1.5%, the policy is giving a poor deal to the consumer.
Joke: statements of motor accidents
> The pedestrian had no idea which way to run as I ran over him.
> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.
> The indirect cause of the accident was a little guy in a small car with a big mouth.
> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.
> The indirect cause of the accident was a little guy in a small car with a big mouth.
Sunday, August 24, 2008
Real estate site in Singapore
Visitors to this site said that it is the best real estate website that they've come across. They find it easy to search, and benefit from the price trends and transaction data available. This helps them make more informed decisions against real estate agents, especially the unethical ones who are only interested in closing a deal fast, and do not give their clients accurate information.
http://www.streetsine.com/
http://www.streetsine.com/
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