Selecting a good whole life plan

Mr Tan,

Are you saying that a whole life policy gives a poor return? Why are so many whole life policies sold even today? Even NTUC sells them in large numbers.

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REPLY:

If you are investing in a financial product for many years, it is important to have a product that have low charges. The difference in yield of 1% or 2% p.a. can be a lot of money (may 50% more) over 30 years.

Many whole life plans have high charges (to pay commission to the sales agent and profit to the insurance company). They take away an additional 1% or 2% from your yield. It also have a high front end charge, of up to 18 months of your premium. You are locked into this plan and can only cancel the plan after paying a heavy penalty. This is bad.

NTUC Income has lower charges, and can give a yield of about 1% p.a. better than similar plans in the market. It is fairly attractive.

A better plan is to buy a decreasing term insurance and to invest the difference in a low cost, large well diversified fund. Look for an investment plan that has a low sales charge. Better still, look for a plan that has no sales charge.