Benchmark for Life Insurance Policy

Here is a guide to measure if your life insurance policy gives good value to you.

Calculate the yield on the policy, using your annual premium and the cash value at the end of the premium payment period.

If you get a yield of 4% or higher, the policy gives good value. If it is lower than 3.5%, the policy does not give good value (i.e. high cost).

Here is the reasoning:

1. If you invest for 20 years or longer, you can get a return of 5% or more.
2. The yield on your life insurance policy is due to the expenses and the mortality cover.
3. A significant part of the reduction in yield is used to pay marketing expenses.
4. The reduction should not exceed 1.5%

If you buy Term insurance and invest the difference, you can get a net yield of more than 4%.