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Help regarding the increase in Cash Values of a Whole Life policy

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Old 25-07-2015, 07:15 PM   #1
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Help regarding the increase in Cash Values of a Whole Life policy

So my aunt holds two Whole Life insurance policy, one for me and one for her.

The following tables are the premiums paid, cash values and changes in cash values from year 2012 to 2014.



I'm not sure if I'm understanding the math here correctly, because from the way I see it,
Between 2012 and 2013, Person A paid 1.3k in premiums, and the Cash value increased by 2k.

That's essentially a $700 gain in that one year, because that $700 can be realised if we terminate the Whole Life plan right now, isnt it? That gain is also on top of the insurance coverage we get for that year.
Same goes for the other years. The gains seem a little bit... too large to be true, especially for a Whole Life insurance policy. I must be missing something

Thanks in advance for the advice

Last edited by blengend; 15-12-2015 at 11:08 PM..
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Old 25-07-2015, 08:15 PM   #2
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this is how insurance works, the longer you hold the higher is your returns or else you can never break even. I'm quite sure these 2 policies are inforced for many years already,right?

my whole life policy which is about 16yrs is also giving me more cash value than my premiums paid every year now, so in other words you are enjoying free coverage. in fact, better than free since cash value generated is actually more than premiums paid from now onwards.
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Old 25-07-2015, 08:24 PM   #3
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My guess is also that because you have held these whole life policies for some years. I will guess that the first policy has been active for about 11 years and the second for 9 years.

In the initial few years your cash value will be much less than the premiums you paid in, because of the deductions for fees and commissions. A whole life policy is participating, which means that part of the premiums paid in is pooled and invested in a fund. In later years, the policy's cash value grows by more than the premium paid yearly because the growth also includes some of those investment returns.
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Old 25-07-2015, 08:36 PM   #4
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cash value generated is actually more than premiums paid from now onwards.
In later years, the policy's cash value grows by more than the premium paid yearly because the growth also includes some of those investment returns.
So in such a case where I'm getting free coverage, and getting some spare cash to boot.
How does this fit into an investment portfolio?
Still consider it as a separate thing, or can we integrate it in as a "stock"-ish kind of component since it's generating non-guranteed gains.
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Old 25-07-2015, 08:47 PM   #5
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hi can share which company and what product it is?
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Old 25-07-2015, 08:59 PM   #6
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So in such a case where I'm getting free coverage, and getting some spare cash to boot.
How does this fit into an investment portfolio?
Still consider it as a separate thing, or can we integrate it in as a "stock"-ish kind of component since it's generating non-guranteed gains.
I consider whole life policies part of my semi-liquid assets, definitely, but not part of my investment portfolio since obviously I have no control over them It's part of a long-term commitment that you can but it's not financially wise to break. Plan for it like you would plan for CPF, I guess.

However, whole life policies are much less volatile and will also give much lower returns than stocks:

One, insurance companies are quite conservative with participating funds. Your company should have sent you a letter and/or brochure with a pie chart of their asset allocation - it's probably at least half in bonds and cash.

Two, insurance companies smooth returns so they do not have to report a bad year to policyholders. This is why the bonuses declared are quite stable even though the stock and bond markets may have fluctuated a lot more in that year. They also have to be careful not to declare too much bonuses that will lead to higher commitments for them in future. So they will play it safe.
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Old 25-07-2015, 09:08 PM   #7
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I consider whole life policies part of my semi-liquid assets, definitely, but not part of my investment portfolio since obviously I have no control over them It's part of a long-term commitment that you can but it's not financially wise to break. Plan for it like you would plan for CPF, I guess.

However, whole life policies are much less volatile and will also give much lower returns than stocks:

One, insurance companies are quite conservative with participating funds. Your company should have sent you a letter and/or brochure with a pie chart of their asset allocation - it's probably at least half in bonds and cash.

Two, insurance companies smooth returns so they do not have to report a bad year to policyholders. This is why the bonuses declared are quite stable even though the stock and bond markets may have fluctuated a lot more in that year. They also have to be careful not to declare too much bonuses that will lead to higher commitments for them in future. So they will play it safe.
Yup, agree with izydata, as you cannot liquidate it to do rebalance your portfolio without paying a penalty.

This sort of "investment" has no value to me because it cannot increase portfolio performance through low correlation and rebalancing, so I wouldn't even put it in. Btir for me
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Old 25-07-2015, 10:18 PM   #8
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read this and the subsequent discussions on a real life whole life policy performance:

Why high-paid retrenched middle-aged workers settle for low-paid jobs?
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Old 25-07-2015, 10:23 PM   #9
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Avoid Manulife, they can decrease bonus at their whim and fancy citing poor economy, etc....
I had a policy for 17 years still cannot break even!
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Old 25-07-2015, 10:29 PM   #10
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read this and the subsequent discussions on a real life whole life policy performance:

Why high-paid retrenched middle-aged workers settle for low-paid jobs?
Avoid Manulife, they can decrease bonus at their whim and fancy citing poor economy, etc....
I had a policy for 17 years still cannot break even!
To wts2013, here is an example of failure of a real life policy since you seem to like that so much.
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Old 25-07-2015, 10:45 PM   #11
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To wts2013, here is an example of failure of a real life policy since you seem to like that so much.
I'm a believer of BTIR, but my mum bought this policy 10years ago when I was young and it has broke even

I guess that kinda makes us the luckier ones as compared to the Manulife guy?
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Old 25-07-2015, 11:35 PM   #12
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I'm a believer of BTIR, but my mum bought this policy 10years ago when I was young and it has broke even

I guess that kinda makes us the luckier ones as compared to the Manulife guy?
hi i would like to know is this whole life policy or ltd life policy? and from which company? mind sharing?
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Old 26-07-2015, 08:40 AM   #13
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To wts2013, here is an example of failure of a real life policy since you seem to like that so much.
hahaha, where is your common sense? the chinese saying, one black sheep then u condemn the whole lot ah, hahaha

u must do your homework lah, nobody ask u to buy any whole life policy, tell u the fish, still must teach u how to fish ah, hahaha

Most insurance agents from diff insurers will tell me, "when we promise, we usually give, u can look at past history, we are the only one which give what we promise in the past history, the projected returns". hahaha, not all agents of all insurers say that, only those I pass by their roadshows hor

I did a comparison, I chose this one, which my relative show me prove paid 26k premiums, surrender value after 30 years 60k, one bro here worked out for me 4.88% returns leh

u must know how whole life policy works leh, otherwise dun buy, dun think of making a quick return, why buy insurance? hahaha

Last edited by wts2013; 26-07-2015 at 08:42 AM..
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Old 26-07-2015, 08:59 AM   #14
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I think the key point is that if you commit to the policy for the prescribed 30 years or more then you have a good chance of getting the guided investment returns.

A portfolio with a healthy stock allocation should get you much better returns than 4.88% pa over 30 years. Of course it will be a much more volatile ride, and you could do worse depending on market conditions and the person's own personality.

For people who don't know how to invest and don't want to learn, whole life policies play a role to help (or force) people to save and invest for the long term, while protecting them from themselves and from the tough times. In return, of course, the insurance companies have you committed for 30 years and will earn a healthy profit from investing your money all the while.

Everyone will have to examine their own personality and situation to see if that's a good tradeoff.
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Old 26-07-2015, 09:00 AM   #15
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I've already posted this link of actual returns:

http://www.investmentmoats.com/budge...-to-5-returns/

The highest is NTUC Income Anticipation - 5.35% CAGR (!)

I have NTUC Living Policy, CAGR not as high, but I am satisfied and still keeping it. But... did I pick the policy knowing that it would "outperform" many other policies in the market? Actually, no, a bit of luck involved. I bought it mainly because there was a perception that NTUC was "no frills" and "low cost" whereas a lot of the other insurers were offering all sorts of extras, and I'm always attracted to cheap things.

I think some others have posted their returns in other threads, I remember some AIA policy we were discussing that still hadn't broken even after 10 years. Maybe we should compile all this somewhere since insurers don't want to reveal past performance of their ILPs. (strange- they happily tell us past performance of their funds/unit trust, but don't want to tell us past performance of their ILPs).

To contribute, I had a relative who bought a principal guaranteed ILP 10 years. After 10 years, 0% CAGR, got her principal back only. So I guess the insurer just bought 10 year bonds, collected all the coupon payments, and return her the capital after the bonds matured.
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