Whole life, premium payable for 25 years

Dear Mr. Tan
I learned about your blog site after reading the Edge Weekly Paper. I was intrigued by your revelation on life insurance.

I have a $50,000 whole life insurance plan with annual premium of $1,000 payable for 25 years. After 25 years, I do not need to pay any more premium, but remain insured. The cash value at the end of 25 years is $30,900 (of which about two-thirds are guaranteed). Did I get a good deal?

I have already paid two years' premium. Should I continue the policy?


REPLY

If you pay $1,000 a year for 25 years and get back a cash value of $30,900, the return is 1.6% p.a.

Alternatively, you can spend $100 a year on Term insurance and get a higher coverage. If you invest $900 a year for 25 years to earn 4.5% p.a. (not guaranteed, but quite conservative), you will get back $41,900; If you earn 4%, you will get back $39,000.

Read this FAQ:
http://www.tankinlian.com/faq/savings.html

If you write off the loss of 2 years premium (which you have already paid), the yield on $1,000 for 23 years with a return of $30,900 is 2.4%. It is still low, but probably all right. I suggest that you keep this policy.

Lesson: Avoid high cost life insurance, where a large part of your premium is taken away to pay charges. If you are already committed, it is better to keep the policy.