Whole Life by Limited Payment

1. An insurance agent offered two whole life policies to a parent to buy for the children. The premiums are payable for 10 years and becomes fully paid.

2. The benefit illustration shows the following:

                Annual     Premium    Cash        Assume       Opport
               premium   for 10 yr    Value       4% p.a.        Loss
Child 1    $1,252     $12,520      $12,192    $15,632      $3,440
Child 2   $1,598     $15,980       $15,573   $19,954      $4,387

3. Here is my advice:

If you pay premium for 10 years, the total premium is shown in (2). The cash value (both guaranteed and non-guaranteed) is shown in (3). It is lower than the total premiums that you have paid for 10 years. It does not make sense to put your money into these two policies, as you are sure to get a bad deal after 10 years.

If you invested the premium for 10 years to earn 4% per annum, you will get the figure shown in (4). The Opportuity Loss to you, by buying the Vivolife policy is shown in (5). This large cost goes to pay the insurance agent's commission and the company's profits. They are at the expense of the customer.

Conclusion: Do not buy these two policies, due to the poor return and opportunity cost. It is better to save for your children separately and give them the accumulated savings (say 20% more) at the end of 10 years. They can buy a low cost Term insurance when they start work.

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