Martin Lee @ Sg
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Returns of a 99-year Term

I did a hypothetic exercise of calculating the internal rate of return (IRR) of a term plan held to 99 years old.

This plan is for a male non-smoker, 26 years old of age next birthday and sum assured of $120,000 for death, total and permanent disability (TPD) and critical illness (CI). Annual premiums is $891.60. Assuming the payout is made at the end of each policy year, the approximate IRR is as follows:

Beyond year 44, the numbers are an approximate as the premiums for the TPD should be deducted off (because it is no longer payable). The working for that is much more tedious so I have simply included it. The difference is not much ($32.49/year).

If a person has the discipline to actually pay the premiums all the way, a 99-year term insurance can be a useful tool to ensure a person has sufficient coverage (and if he wants critical illness coverage for life).

A whole life plan for the same person would cost from $2400 onwards (payable for 20 years) depending on which insurer you go to.

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19 comments
The Watchman says 8 years ago

Some people mistakenly think that the faster the limited pay WL plan is paid up claim is guaranteed. These salesmen assume their clients have ONLY CI need and limited WL solves and therefore put every cent into it. To these salesmen may I suggest a better solution to further guarantee that there will be a claim and that is by buying a single premium CI plan, similar to universal life.
Do you think this is a surefire plan? Please , think carefully if you have a little brain or bird brain and a conscience.Why?
1.only people like Micheal Douglas can afford FULLY.To people like him a WL CI plan is an expense..surefire in this case.
For many out there, they can afford a fraction in WL because they have other equally pressing needs.Practise holistic planning , please.
2.Even a dummy has listened to his unscrupulous salesman to POUR all his earning into the CI WL there will come a time he will have a financial crunch or money no enough situation. What happened? borrow? this means the beginning of the end of his CI cover and a big threat to the surefire plan. Thsi even happens to so called HNWI ($200K annual income)..
3.come 65 years old another milestone, money or insurance dilemma.
4. upon reaching 70 years old if still no claim…but cash value dwindling before your eyes…money needed because agent forgot and incompetent in retirement planning.. every cent earned went to buy single premium endwoment or regular endwoment or the scam cash back anticipated endowment disguised because that is what insurance salesmen know. The one size fits all or the cure all products for retirement , for college funding and for all kinds of risk management, everything use insurance…..wahlow ,, inefficient use of hard earned money.
What is the verdict? Statistics speak LOUDER, right? Am I speaking louder , now?
Visit the MAS website… littered with lapses, termination, early surrender, annuity conversion and how many crossed the finishing line of 65 years old?
Friends, have conscience… argument is cheap..but you already laughed all the way to the bank or banks. Spare a thought for the family..If you are a CFP and making the pledge this October 1st, please remember this and don’t lie in your heart . Make sure your pledge and your deeds are in congruence.

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The Watchman says 8 years ago

Isn’t Martin’s 99 year term plan a solution? or you want to be covered for a few generations?
The best plans are still ntuc term plans, no need 99 years…for what? but please stay away from their crap scam vivolife or revosave or vivolink.. they are alll scam products of NO financial planning value except high commission to the agents and cheap source of capital to the company.

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Shanne says 8 years ago

Aiyo Wilfred, who ask you to buy from AIA or Prudential wor?? ๐Ÿ˜›

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Shanne says 8 years ago

Aiyo The Watchman, you again? Andy is right. Please offer your solution. If you can’t name a plan, may I suggest you don’t be so loud?

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The Watchman says 8 years ago

Andy,
don’t you have eyes to read my solutions? Try read deeper into it, ok?
It doesn’t matter how many oaths you take or even if you are a CPF or CFA if your DNA makeup is crooked because you will be BENT on putting your own interest first, right?
Understand what is a holistic solution? My is not flawless. I examine first before prescription but many out there is commission before mission or one company always says people before profit but their agents do otherwise.

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The Watchman says 8 years ago

Salesmen’s talk and nothing but salesmen’s talk.. what the heck you need an insurance at 99 years old? to keep you in life supporting chamber? or mummify you? Come on, there are crappy agents who die die will argue for WL because of the big commission giving all sort of imaginary
How much do you think one needs after 65 years old? $50K or $500K? Some one even talk about needing insurance after 99….this is real scam talk. Why not ask what if one survives to 200 years to justify buying a wholelife. Wait a minute that company might not survive that long with the impending removal of commission by MAS.No more agent to sell, hor. What happens then?. The insurance companies depend heavily on product trafficking agents to push scams to unwary dummies.
Oh, I forgot Micheal Douglas ..he is 64..he has cancer…but are you Micheal? are u as rich as him? No doubt he can buy 1million worth of CI cover and premium is peanut and he is not worrying the cash value eroded over time especially after 65..he got stash of it in the vault, under the bed, in the closet…
What about the ordinary man in the street? Can he do a Michael? He is divided between his many needs.He needs money and lots of it when he is bring up his family and kids and he cannot afford just have only $55K as reported shamelessly by LIA. He needs lots of it , maybe $500K? but what is the premium of WL? You mean that is his only need? Where is the holistic planning as touted by financial planners? Does he care when he is old and over 65?.He needs money to retire and not the insurance . Can he borrow from the insurance company to retire? Holistic planning is full of holes..no different from the hippocratic oath taken by doctors and soon on 1st october all planners will be making a pledge to put the clients’ interest first and to ensure that his cleints get responsible and competent financial planning.. Oath , pledge or swearing is sham if their DNA is flawed genetically tempered by self interest and greed.

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    andy says 8 years ago

    “Oath,pledge or swearing is sham if their DNA is flawed genetically tempered by self interest and greed.”

    You keep bashing solutions offered by different people.

    Seemed easy to judge others’ solution.

    Why dont you Share your solution instead your judgemnt to other’s solution since you think yours is so flawless and without self interest!

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Shanne says 8 years ago

Martin,

Once again, thank you for your sharing.

Your numbers are correct but let me share my thought on this. The IRR seems attractive and it appears like a sure-make-money policy (positive IRR). BUT, this is on condition that you pay the same premium rates throughout the term. While the premium rates for death and TPD are level and guaranteed, the rates for CI are not guaranteed.

Based on your example, CI accounts for over 40% of the total premium. 73 years is a very long years for Aviva to hike the premium. And how sure are you that Aviva will be in S’pore for that long? Sekali it pulls out and somebody takes over and up the CI premium like nobody business then how?

I am not against CI term, but I do not think CI term for a lifetime really makes sense. There are so many uncertainties. And how sure are you that people will keep and pay and pay the policy for such a long time? And sekali some people continue to be healthy and live past 100 then how?

Yours is a decent blog, so I hope you have a wider perspective of issues that you raised. I will be very concerned for you if someone were to heed your advice and buy this plan, only to find out huge premium hike many years later. Trust me, you do not want this kind of thing to haunt you.

As for the 20-year WL thingy, I think it’s a much be solution as far as lifetime CI cover is concern. At least it’s sure-claim, and your risk of insurer hiking the premium is only limited to 20 years. If you got money and more kiasu, can go for 5 years instead.

Keep up with the good work so far.. ๐Ÿ™‚

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    Wilfred Ling says 8 years ago

    Shanne,

    Historically bonuses for par plans have been cut not a little but by huge margin. Hiking CI Premiums and cutting bonuses are equivalent as it affects the “ROI” so to speak. You do remember that there was one insurer which cut its terminal bonus to ZERO which in some cases were nearly 40% of the projected maturity value.

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by-passer says 8 years ago

Hi,
Can this illustration include CI for the IRR as well?
What are the considerations for a whole life with CI, vs term with CI?

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    lioninvestor says 8 years ago

    Hi by-passer,

    the illustration is already inclusive of CI.

    A whole life costs more, but has a sum assured that increases as the years go by. There’s also a surrender value if you are forced to surrender your policy.

    Reply
Singaporean says 8 years ago

Am I right to say that the annual returns refer to a successful claim? If that is so then the higher the percentage return the better. So for those later years when the returns are just a few percent how can that be a good return?

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    lioninvestor says 8 years ago

    Yes, it’s based on a claim.

    The IRR is just for illustration purposes as the purpose of insurance is really to provide for a lump sum payout when you need it most. This need is much higher when you are young. Normal investment instruments will not be able to give you that kind of leverage (in returns) for the initial period.

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Eddie says 8 years ago

Looks good in theory, but most insurers I went to don’t offer 99 yr term plans.

The most I have seen so far is a 30 yr term plan. That’s after having spoken to 4-5 agents from different companies.

Please let me know if there are any companies out there that offer such long terms. I would be very happy if they can even offer 40-50 yr term plans.

Ed.

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    lioninvestor says 8 years ago

    Hi Eddie,

    The numbers are not based on theory. I generated them from an actual benefit illustration from Aviva. It is a term to age 99.

    Not too sure which are the companies you went to. Even NTUC has a 35-year term and their terms plans are renewable up to age 79.

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      oolelazz says 8 years ago

      Hi,

      I went to Aviva’s website but can’t seem to find the term plan to age 99. What’s the plan’s name?

      Does Prudential have such plans that cover up to 99 years too?

      Pls advise.

      Thank u.

      Reply
        lioninvestor says 8 years ago

        It’s their normal term plan, Myprotector.

        No for Pru.

        Reply
Ee Min says 8 years ago

Question is on sufficient coverage.. since sum assured is on nominal figure not adjusted for effect of inflation. Hence, real dollar value of protection is actually on a decreasing scale.

But without question is the amount of leverage if claim payout is early say within first 5yrs.

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    lioninvestor says 8 years ago

    Yes, but amount of protection should also technically decrease as one accumulates more wealth…

    Reply
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