Term insurance, payable to 100 years

Dear Mr Tan,

I've been following your blog and understood your point is there's no need to insure myself beyond 65yrs old, since there's not much income to be insured against. My agent sent me this benefit illustration when I asked for a $1M term life coverage to 100 years old. 

I'm currently 34, assuming I die at 100 yrs old, I'll have to pay premiums for (66 x 3,940 = $260,040) That's the maximum premium payable. But my coverage will be $1,000,000, and I can't imagine I'll live beyond 100 years old. Even our statistics shows, men's expectancy is only up to 79years old. So a payout is almost guaranteed.

Isn't this too good to be true? Apart from the fact that I won't get to use this $1M, it'll be a pot of money for my loved ones. How does the insurance companies make money from these?

REPLY

Based on your calculation (and I can see no fault in it), the policy does look attractive. The possible catch is:

a) There is no cash value. If you discontinue the policy at any time in the future, you will lose the excess premiums that have been paid (i.e the difference between insuring up to age 65 and 100).

b) There is the risk that you may overlook to pay the premium and the policy is cancelled. The insurance company may refuse to reinstate your policy even if you opt to pay back the arrears in premium. I do not know what are your reinstatement rights

c) If you live beyond age 100, you will lose all of the premiums that you have paid.

Based on SAF group insurance, you only need to pay $1,540 a year for $1 million of cover up to age 65.