A policyholder invested $42,000 in 3 annual premiums in a life insurance policy 15 years ago. He was given a benefit illustration that showed an illustrated maturity benefit of $82,000. The illustrated yield was 5% p.a.
According to the benefit illustration, the surrender value up to 14 years showed a yield of less than 1.5% p.a. He kept the policy to the maturity date and was shocked to receive a lower payout of $72,000, as the original $82,000 was "not guaranteed".
The reduced payout reflected a yield of 4% p.a., which is quite acceptable, in my view. However, if he had to terminate the policy earlier, he would get a poor cash value - allowing the insurer pocketing the difference. By keeping to the maturity date, he should get back closer to what he was promised, rather than take a cut of more than 10% on the promised amount. This is the case of - tail you lose, but head, you do not win.
If he had invested the same money in the STI ETF for the past 15 years, the average yield was 9% p.a. The accumulated amount would have been $123,000. Even if the stock market had dropped one third from the current level, say STI index of 2,000, the policyholder would still get more than what was paid by the life insurance policy.
This is another example of why consumers should not trust the "non-guaranteed" values shown in life insurance projections. The insurer has been making promising projections and cutting back on the promises too often. Do not trust these projections!
Note: these figures are based on an actual case that was presented to me.
According to the benefit illustration, the surrender value up to 14 years showed a yield of less than 1.5% p.a. He kept the policy to the maturity date and was shocked to receive a lower payout of $72,000, as the original $82,000 was "not guaranteed".
The reduced payout reflected a yield of 4% p.a., which is quite acceptable, in my view. However, if he had to terminate the policy earlier, he would get a poor cash value - allowing the insurer pocketing the difference. By keeping to the maturity date, he should get back closer to what he was promised, rather than take a cut of more than 10% on the promised amount. This is the case of - tail you lose, but head, you do not win.
If he had invested the same money in the STI ETF for the past 15 years, the average yield was 9% p.a. The accumulated amount would have been $123,000. Even if the stock market had dropped one third from the current level, say STI index of 2,000, the policyholder would still get more than what was paid by the life insurance policy.
This is another example of why consumers should not trust the "non-guaranteed" values shown in life insurance projections. The insurer has been making promising projections and cutting back on the promises too often. Do not trust these projections!
Note: these figures are based on an actual case that was presented to me.
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