Limited Pay Life Insurance Return Rate

MikeDirnt78

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Surrender value and sum assured increase together leh.

E9F872D2-21EE-48AB-AEBB-251BBE7D6507.jpg

I bet you bought the policy because of the huge non-guaranteed portion? :s13:

So clever of Prudential to inflate the numbers. You should go for TM Asia. They are usually more generous with the guaranteed portion.
 

OngHuatHuat

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1. Not fair. If like that let us compare 61 to 65 years old then?
The insurance premium I paid for 10 years covers the insurance cost from 26 years old all the way up to 99 years old, with increasing sum assured.
The longer the tenure, the higher the chance my policy will outperform term + investment.

2. Use that fixed premium to compare then, don choose the cheapest premium to justify your point.

3. 1.3 k per year for 1 million, I assume this is fixed. Does it include critical illness coverage?

Let say you hold this until 99 years old, how much premium you pay?

1. It is a fair comparison. Which part not fair.
2. There r term with fix premium till 65yo. In fact most. Im in the late 20s.
3. On ur last part, which is not part of this academic study, im paying 1.3k per yr for 1mill term.

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OngHuatHuat

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Nah, I bought because I need some life coverage.
And for your information, the non guaranteed portion for the first 4 years already converted into guaranteed for my case. That's why you see my current guaranteed portion is around 12 k (second row, this is consistent with the cash value of my life policy).

If drag for a few more years, we will see a even clearer picture.

I bet you bought the policy because of the huge non-guaranteed portion? :s13:

So clever of Prudential to inflate the numbers. You should go for TM Asia. They are usually more generous with the guaranteed portion.
 

makav31i

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I must reiterate what makav31i said.

For life, either u die n benefit ur next of kin or u surrender. If u BTIR, u can liquidate whenever u want.

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Actually, while you can liquidate your investment whenever you want, your returns might not be as expected due to market uncertainty which might even results in losses...
 

chopra

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1. Not fair. If like that let us compare 61 to 65 years old then?
The insurance premium I paid for 10 years covers the insurance cost from 26 years old all the way up to 99 years old, with increasing sum assured.
The longer the tenure, the higher the chance my policy will outperform term + investment.

2. Use that fixed premium to compare then, don choose the cheapest premium to justify your point.

3. 1.3 k per year for 1 million, I assume this is fixed. Does it include critical illness coverage?

Let say you hold this until 99 years old, how much premium you pay?
1. True. So fairer is 99yr term. Paiseh i dont have data for tt.
3. Without ci

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chopra

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Actually, while you can liquidate your investment whenever you want, your returns might not be as expected due to market uncertainty which might even results in losses...
Note that i see the investment part of life insurance as buying bonds. Liquidation risk is minimal. 3.08%.... buy sgs 20yr bonds if u kia-si. If u wan to up % a bit (which is what these insurance coys buy), buy 250k 3-4% lta bonds.

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chopra

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Side observation: i have no idea why would ppl buy term beyond 70yo or whole life. What r u insuring or risk pooling huh? By 99yo, ur dependants will be 60 to 70. Still need ur money? :s22:

Side obervation 2: ur total death payout of 400k is around 50k (400 /2/2/2) present value assuming 3% and going thru 3 rounds of rule of 72 (99-26)/(72 / 3 ). So lich!! U give ur descendant 50k when they r 70yo...i dunno they will pui chao nua anot

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OngHuatHuat

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Side observation: i have no idea why would ppl buy term beyond 70yo or whole life. What r u insuring or risk pooling huh? By 99yo, ur dependants will be 60 to 70. Still need ur money? :s22:

Side obervation 2: ur total death payout of 400k is around 50k (400 /2/2/2) present value assuming 3% and going thru 3 rounds of rule of 72 (99-26)/(72 / 3 ). So lich!! U give ur descendant 50k when they r 70yo...i dunno they will pui chao nua anot

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I will be very happy if my father passed me 400 K when I am 60 years old. LOL

3% inflation rate is a wrong assumption. Last year it was negative lor. 3 % is the figure they used to compound the minimum sum for CPF.
Sg inflation rate is lower than this, with the exception of property price. If you just consider daily expenses, my expenses didn't really increase a lot for this 10 years. Utilities bill has gone down instead of went up.
And don't forget, SGD is very strong currency because government want to curb inflation. The super inflation that you see elsewhere, very hard to happen in SG(with the exception of property price).

The truth is you are paying ever increasing premium over the years for the same coverage without CI for term insurance.
And you forget to take this into consideration, when you get older, that is the time at which your expenses and burden increase a lot, there is higher chance for you to be retrenched as well. Term is cheap when you are young, what if you turn 50 plus? And what if you are out of job when you are 50 plus?
 
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OngHuatHuat

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http://www.income.com.sg/insurance/life-insurance/term-life-insurance/luv/details/premium-rates#main

To further justify my point, look at this cheap LUV insurance provided by NTUC to NTUC union members(yes, you need to be NTUC union members to be eligible for this), for 200 K of deluxe cover(only deluxe cover include CI, basic cover doesn't include CI), the premium is as follows:

51-55 : 85 per month = 1020 per year = 5100 for 5 years (still okay, but not happy liao)

56-60 : 112 per month = 1344 per year = 6720 for 5 years (getting angry liao)

61-65 : 300 per month = 7200 per year = 36000 for 5 years (what the hell, i might as well stop)

66 - 70 : 740 per month = 8880 per year = 44400 for 5 years (unacceptable)

So to cover up to 70 years old with CI coverage , from 51 to 70 years old you need to pay around 92220.
The insurance cost shoot up a lot when you get older.

And don't forget, CI coverage for term is very expensive.
 
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Lewis.T

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Renewal term gets very expensive later on. If you wish to go term I suggest going for one that is non renewable, but you have to choose the desired length of coverage from inception.

What this does is it will allow the policy owner to more or less pay the same premiums monthly throughout the duration of the term. (I say more or less because some riders are not fixed premiums and may change)

The longer the duration you wish to be covered for, the more premiums you'll have to pay monthly.
 

w1rbelw1nd

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Anyway. I will be basing my alternative term+invest using such that the netcash flow from the person's perspective is still 10 years of -$3011, 29 years of no cashflow (ie investment liquidated/dividends used to pay for insurance premiums) and liquidating all investment at 65 years old to get all the cash back.

Comparison is the liquidation value versus ur pru policy

Any comments on my methodology?

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OngHuatHuat

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I realized term + CI at later stage is very very expensive, but CI is a component that needs to be included.


Anyway. I will be basing my alternative term+invest using such that the netcash flow from the person's perspective is still 10 years of -$3011, 29 years of no cashflow (ie investment liquidated/dividends used to pay for insurance premiums) and liquidating all investment at 65 years old to get all the cash back.

Comparison is the liquidation value versus ur pru policy

Any comments on my methodology?

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w1rbelw1nd

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Numbers are out:

https://docs.google.com/spreadsheets/d/1LnC_UaCxxxmDDaeQPVZ-0FSRAQXTCd5qE6Fc-sYhzQ8/edit?usp=sharing

For yyhwin's policy at inception:
Guaranteed returns: 1.59% IRR
Projected (non guaranteed returns: 3.88% IRR

For a term + invest self structured product, key parameters:

1. Bought cheapest level term policy with similar coverage (100K TPD and CI) on comparefirst
2. Project based on ES3 STI returns, -1% absolute off those returns to take into account trading cost, and to add a level of conservativeness
3. Intentionally make it such a way that first 10 years cash outflow from person's perspective from 26 years old to 65 years old is the same.

Term + Invest returns : 4.95% IRR NON-GUARANTEED

Of course there can be a lot of different parameters, but I would believe this should be a good base for discussion.
 

w1rbelw1nd

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Anyway, just to highlight,

I know when insurers use the word "guaranteed" for the payouts, our panties will get a bit wet because we love certainty and any written confirmation alluding to that. Yes, it is good that there is confirmation that our returns is legally binding, but ultimately we are looking at majority A-/AA- credit rating companies. Given a sufficiently long enough time frame, there is a reasonable possibility that one of 7 or 8 major insurance company in SG will fail. The "guaranteed" returns isnt quite the same "guarantee" that SDIC or Singapore government bonds can give us.

Just to make sure we are all on the same page ya.

Edited credit rating to reflect actual credit rating.
 
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Lewis.T

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Anyway, just to highlight,

I know when insurers use the word "guaranteed" for the payouts, our panties will get a bit wet because we love certainty and any written confirmation alluding to that. Yes, it is good that there is confirmation that our returns is legally binding, but ultimately we are looking at A- credit rating companies. Given a sufficiently long enough time frame, there is a reasonable possibility that one of 7 or 8 major insurance company in SG will fail. The "guaranteed" returns isnt quite the same "guarantee" that SDIC or Singapore government bonds can give us.

Just to make sure we are all on the same page ya.

News from 2014,

http://business.asiaone.com/news/call-strengthen-insurers-amid-increasing-risks said:
Prudential's shield plans were among the most popular last year, as were its products targeted at wealthy people and those aged 40 and above, said chief executive Tomas Urbanec.

"We now offer investment, protection and legacy planning products for high net worth customers and that has been in the past few years one of our fastest-growing segments," he said.

The firm has just received an AA credit rating from Standard & Poor's, making it the top-rated insurer in Singapore. This will likely further boost business as wealthy customers look to place "significant sums of money" with Prudential, he added.

http://www.prudential.com.sg/corp/prudential_en_sg/header/aboutus/ said:
Prudential Singapore, an indirect wholly-owned subsidiary of UK-based Prudential plc, is one of the top life insurance companies in Singapore. We have been serving the financial and protection needs of Singaporeans for 85 years. Our focus is to bring wellrounded financial solutions to customers through our multi-channel distribution network, with product offerings in Protection, Savings and Investment. We are one of the market leaders in Protection, Savings and Investment-linked plans with S$28.4 billion funds under management as at 31 December 2015. In 2014, we were awarded an AA Financial Strength Rating by leading credit rating agency Standard & Poor’s.

credit-ratings-simplified.jpg
 

hogrider88

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I realized term + CI at later stage is very very expensive, but CI is a component that needs to be included.

My term plan:

1mill death/tpd
250k CI

120+ mthly all the way till 65.

Sign early, lock in premium, quit smoking.
 

OngHuatHuat

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My projected sum assured for death is around 200 k plus when I am 50
Plus to 60 plus years old, this will significantly increase insurance cost of your model.

If you try term 200 k plus CI 100k for the last 15 years, i.e. From 51 till 65 years old, it will reduce your return by quite a huge margin.



Numbers are out:

https://docs.google.com/spreadsheets/d/1LnC_UaCxxxmDDaeQPVZ-0FSRAQXTCd5qE6Fc-sYhzQ8/edit?usp=sharing

For yyhwin's policy at inception:
Guaranteed returns: 1.59% IRR
Projected (non guaranteed returns: 3.88% IRR

For a term + invest self structured product, key parameters:

1. Bought cheapest level term policy with similar coverage (100K TPD and CI) on comparefirst
2. Project based on ES3 STI returns, -1% absolute off those returns to take into account trading cost, and to add a level of conservativeness
3. Intentionally make it such a way that first 10 years cash outflow from person's perspective from 26 years old to 65 years old is the same.

Term + Invest returns : 4.95% IRR NON-GUARANTEED

Of course there can be a lot of different parameters, but I would believe this should be a good base for discussion.
 

w1rbelw1nd

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My projected sum assured for death is around 200 k plus when I am 50
Plus to 60 plus years old, this will significantly increase insurance cost of your model.

If you try term 200 k plus CI 100k for the last 15 years, i.e. From 51 till 65 years old, it will reduce your return by quite a huge margin.
Well, if one were to die under the term + invest, you get the investment + 100k coverage, which adds up to 200k+, right?

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