To keep or terminate an existing life insurance policy?

I have been asked quite often on whether a specific life insurance policy taken previously should be terminated for its low yield. The right approach is to calculate the yield on the policy for the next (say) five years and to compare this yield with the yield from alternative investments, e.g. an ETF or a REIT.

This paper explains how to calculate the yield on a life insurance policy. Although a life insurance policy gives a poor yield for its entire duration, most of the expenses are deducted upfront. After the initial loss is written of, the running yield on the policy may be quite acceptable, e.g. close to 4% per annum. In most cases, it is better to continue the existing policy (although the consumers should have avoided it in the first place).