Universal life plan , premium legacy from AIA

[MLP]

Don't be confused on dividend yield vs. annualised yield. Dividend yield may be 3% but the price of STI ETF has also gone up in line with the stock market performance. So as a whole, your annualised yield is around 9% since inception.

It's a fund that tracks the STI. But has lower management fees compared to those named funds sold by the fund houses.

I doubt if its dividend is 9% as even the top dividend paying stocks in the STI do not pay much above 6%. The dividend is more likely to be around 3+%.

[chiaberry]

I think it's enough to cover till 70. By then the beautiful boys should have grown up and become independent. No need to provide for them. If you are still needing to support them by that age.....

Just hope that they don't go and marry beautiful girls who will fool around and spend your money.

[MLP]

Here is another quote from Tan Kin Lian's blog:

Universal life is a life insurance product. It is likely to have high charges taken away from your savings to pay commisison to the agent. You should ask the agent about the charges. A universal life policy is likely to have charges similar to an investment-lined plan.

You can read about the charges on investment-linked plan (ILP) from this FAQ
http://www.tankinlian.com/faq/ilp.html

Insured amt = US$1,000,000.
Initial premiun = US$261,000
Premium class = Preferred
Rate on initial premium for 1st 7 yrs = 4%

I will be borrowing against my portfolio to pay for my US$261k premium.
Borrowing cost is est 1.06% now (US$2.7k or SGD$3.45k).


Universal life plan Vs Term insurance
-------------=---------------------------------------
Sum insured US$1,000,000 Vs SGD$1,000,000

Premium US$2.7 or S$3.45k /yr VS est S$10k/yr

Protection age inifinity Vs Max age 99 (age100 lapse)

Return There is a return Vs No return at all

Trust Free if >US$2m Vs U need to pay


I hv been quite curious for past 2 yrs why the rich & smart people are borrowing money to buy Universal life plan ( USD5 to 10 million). Why must be in USD ? Why not SGD as US dollars maybe depreciate in long run?. I need to come out one lump sum single premium for universal life plan is a huge amt. Why not just buy a term insurance which is cheaper where U pay yearly.

I start to realise when I ask around & compare with my friends who bought term insurance. I find that by borrowing to finance my Universal life plan. I am actually paying less than a term insurance + many advantage for protetction as shown above.

So if U will to buy univeral life plan. U must be able to borrow USD which is very low now to finanace the universal life plan. This is how the rich & smart people did it. I just follow what they do.


rdgs,
Vic

[Shanhz]

Dividend about 2+%. 9% includes cap gain

yes, i just checked. 2.45%.

every half year, they declare $0.04. so full year = 0.08/3200 (for example)

not fantastic. from inception not relevant anymore since we not vested. so hv to wait until STI drop back to 2,000 before entering.

[Shanhz]

It is advisable to just buy term insurance till 65 o 70 years old. No need to cover till year 99 or 100.

i beg to differ. if term ins covers critical illness, it shld stretch beyond 70 given that higher life span expected (but burdened with sickness).

[roly8]

Don't be confused on dividend yield vs. annualised yield. Dividend yield may be 3% but the price of STI ETF has also gone up in line with the stock market performance. So as a whole, your annualised yield is around 9% since inception.

good post

[buttercarp]

My friend paid S$6000/yr for SGD$1m term insurance protection with NO return from Prudential until age 99.

rdgs,
Vic

Hi vic, I guess your friend is in his 30's?
Wow, $6K per year till 99 years old.
Sure get the 1 mil if he continues to pay the premium cos how many of us will live till 99 years old?

However, he must be very sure that he can afford the premium after his retirement, or at least get his children to pay his premium after he retires, or the insurance will lapse and he will not get anything back.

He can chose to terminate the payment at anytime with no returns.
But if that's the case, then he would probably opt for a shoter tenure and pay less premium.

[Rosy]

i beg to differ. if term ins covers critical illness, it shld stretch beyond 70 given that higher life span expected (but burdened with sickness).

Imo, one should have both whole life policy and term insurance.

The whole purpose of term insurance is to boost the coverage with lower premium on top of whole life policy.

Premium surge up even more after 60yo for term insurance which make it losing it's original purpose. It is actually advisable to terminate term insurance between 50-60. Whole life policy continues to cover u after that.

[roly8]

live with no fear!

[chiaberry]

Imo, one should have both whole life policy and term insurance.

The whole purpose of term insurance is to boost the coverage with lower premium on top of whole life policy.

Premium surge up even more after 60yo for term insurance which make it losing it's original purpose. It is actually advisable to terminate term insurance between 50-60. Whole life policy continues to cover u after that.

Whole life policy with critical illness rider/waiver is best taken out when young.

Limited pay policies are available if you are worried about servicing the premiums after retirement.

The premiums surge for group term insurance (eg AA/SAFRA group term plans). As far as I am aware, for those you purchased individually, the premium is level throughout the term (it is priced at the age when you enter).

[MLP]

If people think like you, then they will lose out in the long run. Investment is a long term commitment and one should invest regularly. Otherwise you can tan gu gu...

yes, i just checked. 2.45%.

every half year, they declare $0.04. so full year = 0.08/3200 (for example)

not fantastic. from inception not relevant anymore since we not vested. so hv to wait until STI drop back to 2,000 before entering.

[Rosy]

Whole life policy with critical illness rider/waiver is best taken out when young.

Limited pay policies are available if you are worried about servicing the premiums after retirement.

The premiums surge for group term insurance (eg AA/SAFRA group term plans). As far as I am aware, for those you purchased individually, the premium is level throughout the term (it is priced at the age when you enter).

You are right.

I choose group term because the premium is lower and i intend to terminate once i hit 60yo.

Maybe can consider to have 3. Whole life, group term and term as a whole package.

[chiaberry]

If people think like you, then they will lose out in the long run. Investment is a long term commitment and one should invest regularly. Otherwise you can tan gu gu...

People have to get over their fear of equities.

The falls in 2008 are still fresh in their minds. However, 2008 was a great period for buying in, even if already vested.

[chiaberry]

You are right.

I choose group term because the premium is lower and i intend to terminate once i hit 60yo.

Maybe can consider to have 3. Whole life, group term and term as a whole package.

Yes insurance needs to be reviewed regularly and before reaching 40 years old it must be reviewed seriously before the premiums for whole life escalate.

As mentioned, for those younger people, getting a limited pay whole life policy with critical illness should be considered. This type of policy should also be considerd to buy for your kid to cover critical illness (pay for 20 years and cover for the rest of their life).

(I am not an insurance agent - just an end user).

[hopeful]

some of the criticism against universal life/whole life is that when interest rates fall, the policy holders have to top up.

1) since projected returns of the universal life/whole life are based on the current low rates.
2) rates can only go up.

so, won't the returns of the policy be more than the projected returns ?

[MLP]

Buy term insurance is ok but NEVER buy a life insurance or an endowment plan.

I have many very bad experiences with such life insurances and endowment plan from several major life insurance companies (AIA, Income, Aviva and Prudential) in Singapore. They can show you very attractive returns on illustration paper, but when come to actual claim you can expect your bonuses cut by at least half. They can give you all kinds of reasons for the bonus cut. NEVER trust insurance companies again.

The rule of thumb is: buy term insurance only and invest the rest in STI ETF.

Yes insurance needs to be reviewed regularly and before reaching 40 years old it must be reviewed seriously before the premiums for whole life escalate.

As mentioned, for those younger people, getting a limited pay whole life policy with critical illness should be considered. This type of policy should also be considerd to buy for your kid to cover critical illness (pay for 20 years and cover for the rest of their life).

(I am not an insurance agent - just an end user).

[Jaykj]

I am borrowing USD dollar @1.06% to pay for my premium. I dont convert my SGD cash into USD. Not worth it.

Borrowing cost is below US$2.8k/yr for USD$1m whole life protection with return until death. My friend paid S$6000/yr for SGD$1m term insurance protection with NO return from Prudential until age 99. So which plan is better . Universal life plan or term insurance from Prudential.

if U buy universal life plan, U must be able to borrow US dollar. If not, better dont buy.

rdgs,
Vic

I have the same Prudential plan as your friend and in fact I'm considering switching over to your plan from AIA. Still undecided

Might consider buying the Aviva Army Group Insurance plan as well as it seems cheap (too cheap in my banker's opinion).

[supermax]

Buy term insurance is ok but NEVER buy a life insurance or an endowment plan.

I have many very bad experiences with such life insurances and endowment plan from several major life insurance companies (AIA, Income, Aviva and Prudential) in Singapore. They can show you very attractive returns on illustration paper, but when come to actual claim you can expect your bonuses cut by at least half. They can give you all kinds of reasons for the bonus cut. NEVER trust insurance companies again.

The rule of thumb is: buy term insurance only and invest the rest in STI ETF.

I dont agree with you on the life insurance part.Recently i surrendered one life policy after 18 years of coverage.The cheque is more than the premium i paid so far.On top of that,i enjoyed the life protection when my dependent are still young.I withdrew cos they are financially independent now.I guess buy life policy when you are young and married and have children.Main thing is protection.

[chiaberry]

I also had an endowment plan mature recently and another one next year. Although the bonuses are not what was projected but over the years have enjoyed the protection and the annualised returns still beat inflation.

[cbsh38584]

I quoted a paragraph from Tan Kin Lian's Blog:

Universal life for high net worth people

There is a similar trap for universal life that is being sold to high net worth people. They are asked to put in $1 million to be invested to get coverage of $5 million. The did not realize that their lump sum investment is locked into the low yielding policy for many years and can only withdraw it prematurely at a big penalty. An example can be found in my book on life insurance (case #16)

UL plan main purpose - PROTECTION with cheap Financing cost.
============================================

This is not a smart way to put one lump sum US$1m to buy a US$5m univeral life plan with a depreciating US dollars. He must borrow US$1m ( Single premium) let say @ 1.5%. He pays his yearly premium @ US$15k (SG$18.6k). Better than to buy term insurance SGD$6m (6 x 1.2 x-rate) with Yearly premium maybe est Sg$60k same age.



======================================
My UL plan insured sum is US$1,000,000. My lump sum premium is US$261k. I borrow @1.06%. So I pay only US$2.7k or SG$3.5k/yr.



Let say base on the ave long term USD borrowing cost let say @ ave 3% (now 1.06%). Base on 261k single premium, I will pay ave 261kX0.03= US$7.8k or SG$9.7k yearly premium.


After 17 years later, my cash value est US$390k. If I decide to terminate my policy 17 years later due to inability to continue. I will get back US$390k base on projected value.


I take my US$390k (projected value) & pay US$261k which I borrowed from bank. I left with US$(390k-261k)=US$129k. Because I borrowed for 16 years, I need to calculate the total amt I borrowed (ave 3% interest rate) . So US$7.8k X 16 years = US$125k. Nett I still can get a small return of US$4k (US$129k-125k) for FREE PROTECTION during this 16 year.

For term insurance, if you terminate after 16 yrs, U GOT NOTHING. At the same time, U need to calculate the premium you paid for the 16 yrs X 10k/yr = Sg$160k for protection. For my age, my term insurance est 10k/yr premium.


I hope my calculation assumption is right.

rdgs,

Vic

　

[chiaberry]

Your loan to pay the premium is secured against the cash value of your other policies? Or secured against other assets? Or is it unsecured loan?

[MLP]

Of course, your cheque amount is more than your premium. The question is by how much. Did you calculate your rate of return? Very often the annualized return from insurance is less than 2%.

You see, a lot of people are still totally ignorant on the low return of life insurance. They still think it is a forced saving that will generate a return for their retirement. This is a fallacy. As they always say, caveat emptor. Don't blame others for your own mistake.

If you want pure protection, just buy a term insurance.

I dont agree with you on the life insurance part.Recently i surrendered one life policy after 18 years of coverage.The cheque is more than the premium i paid so far.On top of that,i enjoyed the life protection when my dependent are still young.I withdrew cos they are financially independent now.I guess buy life policy when you are young and married and have children.Main thing is protection.

[MLP]

As I explained before, the projected value is always at the high side to lure unsophisticated investors. Based on my own experience, you will never get the projected value as indicated and I can assure you that your rate of return will always be much lower.

Have you calculated how long do you need to reach break even against your premium payment? What are all the charges to the policy? How much is guaranteed and non guaranteed? What are the penalties for early withdrawal? Again, for peace of mind you should consult an unbiased insurance expert to review the plan for you objectively.

UL plan main purpose - PROTECTION with cheap Financing cost.
============================================

This is not a smart way to put one lump sum US$1m to buy a US$5m univeral life plan with a depreciating US dollars. He must borrow US$1m ( Single premium) let say @ 1.5%. He pays his yearly premium @ US$15k (SG$18.6k). Better than to buy term insurance SGD$6m (6 x 1.2 x-rate) with Yearly premium maybe est Sg$60k same age.



======================================
My UL plan insured sum is US$1,000,000. My lump sum premium is US$261k. I borrow @1.06%. So I pay only US$2.7k or SG$3.5k/yr.



Let say base on the ave long term USD borrowing cost let say @ ave 3% (now 1.06%). Base on 261k single premium, I will pay ave 261kX0.03= US$7.8k or SG$9.7k yearly premium.


After 17 years later, my cash value est US$390k. If I decide to terminate my policy 17 years later due to inability to continue. I will get back US$390k base on projected value.


I take my US$390k (projected value) & pay US$261k which I borrowed from bank. I left with US$(390k-261k)=US$129k. Because I borrowed for 16 years, I need to calculate the total amt I borrowed (ave 3% interest rate) . So US$7.8k X 16 years = US$125k. Nett I still can get a small return of US$4k (US$129k-125k) for FREE PROTECTION during this 16 year.

For term insurance, if you terminate after 16 yrs, U GOT NOTHING. At the same time, U need to calculate the premium you paid for the 16 yrs X 10k/yr = Sg$160k for protection. For my age, my term insurance est 10k/yr premium.


I hope my calculation assumption is right.

rdgs,

Vic

　

[cbsh38584]

As I explained before, the projected value is always at the high side to lure unsophisticated investors. Based on my own experience, you will never get the projected value as indicated and I can assure you that your rate of return will always be much lower.

Have you calculated how long do you need to reach break even against your premium payment? What are all the charges to the policy? How much is guaranteed and non guaranteed? What are the penalties for early withdrawal? Again, for peace of mind you should consult an unbiased insurance expert to review the plan for you objectively.

I know the projected value is always at the high side. My breakeven without borrowing is 9 yrs. If my borrowing at ave 3% long term, my breakeven is 17 years later. My main purpose is for PROTECTION with cheap borrowing cost . Dont care about projected value. Because I married late, I need to at least 20 yrs protection b4 my sons are in working life.

My term insurance quotation protection premium est Sg$10k/yr for SG$1,000,000. But universal life plan US$1,000,000 with cheap borrowing @1.06% now is US$2.7k or SG$3.45k.

After I buy , the next day cash value is 80% of 261k. I will ensure that the plan will not lapse within 20 yrs.


rdgs,
Vic

[minority]

I hv 2 beautiful sons. When I see their faces. It motivate me to leave something for their future without letting them know 1st.

I will hv my own retirement plan for my wife & I. I am looking in retirement life plan from tokio marine insurance. But the premium is too expensive.

Pay 300k/yr for 5 yrs = Total S$1.5m.
Only At age 60, I will get guarantee S$100k/yr cheque . If my wife & I can leave till age 99, I will be collecting a TL of S$3.9m (age 60 to 99=39 yrs). If my wife & I are no longer around at age 100, my 2 sons will get another >S$3.2m death benefits. Look very attractive retirement plan but premium too high , S$1.5m.

rdgs,
Vic

If u invest the 1.5M today in prop and equity with leverage will u do better? coz insurance return are so far very low.. 2-3% a yr... hardly beat inflation.

[cbsh38584]

If u invest the 1.5M today in prop and equity with leverage will u do better? coz insurance return are so far very low.. 2-3% a yr... hardly beat inflation.

Stock is too volatile. I will only buy when there is extreme fear again. Property will all the CMs + increase in property tax + huge supply coming in. Next 10 yrs may not see any huge upside. My niece bought Aquarius by the park in 1999 (Q overnight to buy). It took her 12 years to BREAKEVEN. End of the day, she is not making money on her investment. The rental is not good during that time.


As I said, UL plan is more for protection in case I really GONE b4 they reach working life. I also want to spread my risk. I am already holding > S$3m bond with leveraging. It Pay me S$200k/yr Net. But will slowly de-leverage by 2014.

I am borrowing US$261k against my investment portfolio.

rdgs,
Vic

[MLP]

It seems that breakeven without borrowing of 9 years is reasonable. And also if the guaranteed cash value is immediately 80% by the next day after purchase is true, then I think it is a good policy. If you treat it like a term insurance and prepare to lose the money for protection, then I guess it is no harm to invest into it.

But it does sound too good to be true to me. Why don't you check with Tan Kin Lian to confirm if your calculation is correct?

I know the projected value is always at the high side. My breakeven without borrowing is 9 yrs. If my borrowing at ave 3% long term, my breakeven is 17 years later. My main purpose is for PROTECTION with cheap borrowing cost . Dont care about projected value. Because I married late, I need to at least 20 yrs protection b4 my sons are in working life.

My term insurance quotation protection premium est Sg$10k/yr for SG$1,000,000. But universal life plan US$1,000,000 with cheap borrowing @1.06% now is US$2.7k or SG$3.45k.

After I buy , the next day cash value is 80% of 261k. I will ensure that the plan will not lapse within 20 yrs.


rdgs,
Vic

[chiaberry]

It seems a reasonable course of action given your circumstances. Don't you have to pay back the principal as well as the interest on the loan?

Will you be able to take another loan on the cash value of the policy in the future should you need to do so? For example if your children need urgent funds for their education or down payment for a property.

[hopeful]

.....
As I said, UL plan is more for protection in case I really GONE b4 they reach working life. I also want to spread my risk. I am already holding > S$3m bond with leveraging. It Pay me S$200k/yr Net. But will slowly de-leverage by 2014.

I am borrowing US$261k against my investment portfolio.

rdgs,
Vic

hi, do they lodge a lien against your investment portfolio? so you cannot do anything to your portfolio.

and if you de-leverage, do you intend to keep the bonds (and top up cash) or sell the bonds off?
if you sell the bonds off, do you need to pay back the premium of 261k?

[lifeline]

many thanks Vic for starting this thread. wanted to start one last time though yours is so much better cos got actual figures and examples.

actually we discussed some of this in the last page of this thread here...

http://forums.condosingapore.com/sho...911#post329911


i was actually very interested in this previously, but then decided on other priorities. in fact if you look carefully, with this legacy planning policy, you are actually buying an asset, your life, just like buying a property. And the beauty is that you can leverage on this purchase, just like buying a property. However the bigger the leverage, the higher the risk; it all depends on the market direction.


this was explained by the bank insurance (bancassurance) officer then:

on the first level, eg to protect 1 mil, rather than buy 1 mil protection, use 250k to buy 1 mil protection, then free up 750k to invest.

on the next level, can even loan from the bank that 250k and pay interest! to the tune of 1.2% (1% fixed and 0.2% floating) and the bank invests in bonds (eg us) that returns 4.2% average. this type of leveraging on your own life (treating your life like another property) can get loan wan. apparently breakeven on year 7 to 8 depending on the market.

so this main factors are here the bonds returns as well as the foreign exchange rate. and still free up the cash for other investments.

another fact: for the quantum paid for this legacy planning, there is no need for medical health checks, ie, it is independent of your health condition cos you have already paid a high premium to make it worth their while. good for those with preexisting medical and with money to spare, and want to leave a legacy.

as you have mentioned, choice of bank is important - though i am not too sure how much the bank guarantees this, cos this insurance is underwritten by another reinsurance company that is usually an independent subsidiary of the bank.

also, you are buying into bonds denominated in us dollars for better yield. taking loan on this single premium allows further leverage, but is also a double-edged sword.

the main advantage here is the "No need for Medical Health Check"... meaning anyone with preexisting medical conditions including HIV (? must check on this, seems possible in US) can also buy, so long as got the money.


many years ago, someone recommended TEPs (Traded Endowment Policy). No gearing one break even, and the geared one lost money; both lost opportunity costs. In addition, all the terminal bonuses promised by the insurance company just vapourised - simply removed cos of the global recession.



Vic is an astute investor and this policy for his children only forms a part of his portfolio. for anyone else going into this as a major component of his portfolio, it does not really make sense, unless for legacy planning (lots of money, etc) or pre-existing illness excluded by traditional insurance.