On my previous article, I have raise on the misleading done by either insurance agent or unit trust agent. Here, I will elaborate more on disadvantages of Investment-link.
- Low Interest return
- Low surrender value
- Extending premium tenure
=>Comparison of return from Investment-Link & Fixed Deposit
Do you realize? The actual return you would obtain from investment-link products are very low, for instance the previous insurance comparison table, it request $6,000 yearly for 5 years, total premium for 5 years would be $30,000 and in return interest for Y1 is $550, Y2 is $ 1,450, Y3 is $1,000, Y4 is $1,000, Y5 is $1,000, Y6-Y10 is $1,000 yearly and onwards…The total interest return on Y35 is ONLY 43,500.
When $43,500 - $30,000 = $ 15,000 (Interest return) after 35 years.
But if you put in Fixed Deposit with 2%p.a, Total Interest Income after 35 years is
$ 27,689.56. You can have EXTRA Income of $12,689.56. So, how would you feel now?
=>Lock-in period & Surrender value
If you have a surrender value on half way for any emergency used, I am sure you would suffer a low surrender value and below your expectation.
One of my friends took an investment-link package and the agent told he only paid premium for 10 years and he may stop paying and waiting until Y30 to withdraw more than 5 times of total paid premium. However, in Y10 he has been informed he needs to continue paying the premium another 10 years more…eventually he surrender it on Y10 and only get back in amount $9,800 out of total premium paid $ 16,920. He has to absorb in total 42% result from surrender. Let say if he is put the money ($1,692 yearly for 10 years) into an investment vehicle with 4.2%p.a interest, after 10 years he could gain Interest income of $ 21,364.90.
Therefore, most of the people might mislead by the agent without taking a proper calculation and comparison and most of the time the agent would more emphasize on “coverage” you can obtain when they their product return can’t beat higher return investment products.
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