Low cost Endowment and Whole Life policies

Dear Mr. Tan,

Is it possible to find an endowment or whole l ife policy with low cost? For example, some unit trusts have no upfront load and low expense ratios, but others have high loads and charges. Is there a similar situation for life insurance policies?

REPLY

Technically, it is possible for an insurance company to design an endowment or whole life policy with no-load, i.e. no commission payable to the agent.

As there is no agent to sell the product, the insurance company will have to find a way to get people to buy the product directly from them. Alternatively, they have to incur advertising cost to make the product known to the potential customers.

To my knowledge, no insurance company has tried to design a product in this manner. But, it is technically possible.

At present, most endowment and whole life products in the market give a net return of about 2.5%. The investment return is about 5%, but 2.5% is deducted to pay agent's commission and other expenses.

If the customer is willing to buy the product directly, they should be able to get an average return of 3.5% on these products, as only 1.5% is needed to cover the other expenses, including advertising. The advantages of endowment and whole life policies is that there is a capital guarantee.