Avoid whole life insurance policies


Specifically, avoid those whole life insurance policies that come with a cash payment every few years. This advice comes from Mr Tan Kian Lian, the retired CEO of NTUC Income, in My Paper today.

He gave an example and computed the overall return to be just 1% per year, even with the regular cash payments reinvested at 2% p.a.

A pure whole life insurance policy (without cash payment) should perform better at 2% per year, he said.

Highlighted in bold in the article:

“Do not invest in a plan with a cash payment every few years. You get a poor return.”

Reasons cited include:

  • Additional premium needed to fund the cash payments
  • High commission for the agent

No wonder insurance buyers (you and I) keep getting poorer, while insurance sellers (our friendly agents) keep getting richer – the 75th-percentile financial planner makes $9,167.

I’m sure they couldn’t have made it to “million dollar round tables” and such without these “well designed” insurance products.


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  1. Pingback: Buy term insurance | Salary.sg - Your Salary in Singapore

  2. Buying term is like renting a house. Buying life insurance is like buying a house.
    Buy term & investing the rest is an ideal.. in theory it works perfect, but in reality? No way. Because we are all human, and human tendencies is to fall into greed and fear. Just ask around your friends – who have made money investing by themselves? Very few indeed. Maybe Adam Khoo or something. You got to be super disciplined to do that. Insurance agents earn the same commission rates selling term or life insurances. In fact some term pay more commission.

    Think about it: Are we stupid? NO! If life insurance is really that bad, then nobody would buy! But most still buy, not because agents want to sell, but because majority of us are normal people who simply want a plan that can keep us on track.

    And guess what? Insurance companies earn the most selling term insurance. Why? Lets suppose life expectancy of man & woman to be about 80 yrs old. This simply means that at 80, about 50% of the people at that age is dead. But there is a 50% chance that you’re alive! And most term insurance expire at 75 – 80 year old. So if you are still alive, the insurance company won the bet. And not forgetting, term insurance premium normally increases with age.

    Most people do not understand the power of a life insurance policy. During the economic crisis, did anybody’s accumulated cash value dropped? NO! because life insurance is one of the most secure place you can put your money in. Life insurance premiums are fixed, and does not increase with age. And it covers you till age 100. If you are still alive then, congrats! You will get back your sum assured plus any participation.

    So please, buying term and investing the rest is for the elite few and the super disciplined. Show me someone that can, without fail, stick to this buy term and invest the rest concept for more than 20 – 30 years and get the returns you get from a life insurance, and I will kow tow to you.

  3. If you are average, just buy life like what Magnum said. But if you do not want your hard earned money stuck with companies like AIG, buy term and invest the rest. Don’t forget that insurance companies do fail sometimes and their “bonuses” are not always great and take note of their “distribution charges”. If your agent is reluctant to sell you term, it’s not because he genuinely worries that you can’t invest well, but it’s because he can earn more commissions selling you life policies. Simple as that. Just note how much are the “distribution charges”. I have friends in insurance who are now just “living off” these distribution charges.

    A lot of insurance is term-based: medishield and its privatised equivalents, car insurance, travel insurance, etc. So why not death insurance?

    If you are so keen on the “projected” 4% to 9% (they NEVER EVER deliver on 9%), then go ahead and get your money stuck with the fat insurance companies feeding your agent along the way. Otherwise, buy term insurance and just buy any blue chip stock to collect good 5% dividends (quite the norm) and even get great capital appreciation if you’re lucky.

    Sincere advice, just as is Magnum’s.

  4. Sounds like ice-cream cannot really take the success of others well. Great advice anyway, based on the argument that we should not buy life insurance so that all insurance agents can starve to death.

    A good agent is not one that sells only term. Neither is an agent who sells a policy solely for the benefit of his own commission a crook. Lets be frank. Some will be good, but some are crooks. Its the same in all industry.

    There is a use for term insurance, just as there is a use for life insurance. No one is more superior than the other.

    I am sure most people, including yourself, get paid for work. And the money is a cost to the company that hired you. This are facts of an free enterprise society like ours. Unless you choose to be in a communistic place. As such, let market forces decide which is the best way of distributing such products. If commissioned agent are not deserving, they will, as a matter of time, be weeded out.

    I maintain a balanced portfolio of growth and dividend stocks both in singapore and overseas. I have life AND term insurance to cover the long term and short term protection needs. I trade forex and also hold on to ILPs in my CPF.

    You see, the reason why I wrote the comment is to give the majority of the people an easy and accessible, and most importantly, simple and workable way to start a plan which can most like outlast most DIY methods. With this base, they could probably add on more stocks and hope to get ‘lucky’.

    I’m just against overly biased comments like ‘avoid whole life insurance policies’.

    Hope this is good info for all

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