What your Insurance Agent would never tell you

To begin with, let me cover some of the reason for writing this post.

I was in the midst of doing my insurance review, which is of course, prompted by an friend who is trying to sell insurance to me. It seems from the title then that this post is perhaps gonna be a negative report on insurance agent and the likes of it. But rest assured, there's no offence intended here. It is merely a factual comparison between term and life policies. I'm not even gonna mentioned the name of my agent or even his company. Everyone buys insurance at a certain point in life so i'm sure this would be useful.

The story goes like this:

I was about to purchase a 100K worth of insurance cover from this friend who just started out as an insurance agent when i happened to chance upon this SAF group insurance (term) thing. Upon performing some basic calculations using an excel spreadsheet, i came to the horrendous realisation that i would have gotten much more if i have just purchase the term insurance and investing the difference. It only came to my knowledge later that there is already a whole weath of literature on this issue but nonetheless, i still wish to share with readers of this blog what you could potentially have saved.

The main terms of both insurance are as follow:

Coverage: $100K of Death + $100K of Critical Illness.
Age of insured: 27

Premium of XXX Life Insurance: $2233 per annum
Premium of SAF Group Insurance: $ 312 per annum

Amount gotten back at age 60 for XXX Life Insurance: $94K
Amount gotten back at age 60 for SAF Group Insurance: $0

The coverage for both policies are more or less similar with only very subtle differences. It has to be so because with an identical policy, it would be very difficult for insurance agents to sell their products, although their punchline would probably be "different products cater to different needs" and theirs always cater to your needs... haha.

Jokes aside, suppose, i take the $1920 saved per annum to invest myself. And using a rate of return of just 5% per annum, the first 13 years of $1920 saved and reinvested over a time horizon of till age 60, one would also have gotten back $94k. Of course, the important differentiation here is that the $312 premium paid yearly goes down the drain should nothing happens, and in fact, one should be more than happy that it goes down the drain. I would be more than happy to give away this ($312 x 33) to Aviva (underwriter for the SAF group insurance). Many still can't get over the fact that the money cannot be recovered.

Simply think of term insurance this way: It is a Out-of -the-Money Put against your life, it is a cheap hedge which you hope you would never need to exercise. Cos if you do, it means something bad must have happened to you.

So using this super super conservative rate of return (5%) to calculcate and with the 33 years of $312 included, one would need just one more year (14years) of difference to more than breakeven with the life insurance. So, imagine the amount one could have saved if you add up all the 33 years of difference saved. And should one's ability to re-invest is more than the assumed rate of 5% here, the potential is even much greater. Suppose i reinvest using a super conservative ROI of 10%, one would breakeven with the XXX compnay life insurance with just 4 years of premium saved.

Of course, you insurnce agent would never tell you this cos if they do, then they'll literally have to eat shit. I'll like to give them the benefit of the doubt and say that maybe, their training would only have them brainwashed that only life insurance is good to their clients and the other side of the coin is always bad. So, the next time your agent ask you to buy life policies, show them this calculation.......

I hope i wun be getting hate mails and death letters from any insurance agents for posting this article.