Martin Lee @ Sg
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Returns of a Limited Pay Whole Life

This is a follow up on my earlier post, Returns of a 99-year term.

The same exercise is done, this time using a 20-year limited pay whole life plan.

The rest of the parameters used are the same. 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). Premiums payable annually for 20 years is $2378.40.

The IRR is calculated based on projections of 3.75% and 5.25% returns as given in the benefit illustration.

A comparison shows that the “returns” from the 99-year term offers a greater financial leverage. This advantage gets lesser as time goes by. In this particular example, the IRR at 40 years for both the term and the whole life (based on 5.25%) are the same.

Unfortunately, the benefit illustration for the whole life plan ends at year 40 so I’m unable to compare beyond that.

Note that this is a purely academic exercise as:

1) Projection returns of the whole life plan are not guaranteed.
2) Premiums for critical illness are not guaranteed and can change.
3) Premiums and projected returns can vary greatly between different insurers.

Leave a Comment:

Shanne says 9 years ago


I rec’d your email. I don’t quite agree with your analysis on this topic. And your comparison isn’t really apple-to-apple. Afterall, they are two different animals.

If you really want to compare, I think you should use TM Legacy Plus, $60k face amount (cos 26-year-old got two times MDB i.e $120k till 65), premium term of 39 years till 65 (longest term so that premium is low), and you get annual premium of $1,081.80. Post-65, the sum assured will be close to $120k with annual bonuses.

Won’t this arrangement be better if client is concerned about lifetime CI risk?

While reversionary and terminal bonuses are not guaranteed, at least TM has not cut any in the last 60 yrs.

    lioninvestor says 9 years ago


    TM Legacy plus is very similar to a whole life bundled with a term. That will make the numbers very different.

    My example here is just to show the kind of IRR you can get from a limited pay whole life plan. Like you mentioned, the features of a term and whole life plan are different.

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