How did my Whole Life Plan fare after 22 years?

There have been a few articles lately on investing at an early age and the wonders of compounding. I do not have a 20 year portfolio to boast about but I do have a whole life plan that I have been paying for over 20 years. Does the wonders of compounding also applies?

Prime Life Projection of Values

In a nutshell, this is a basic whole life plan with a death coverage of $50,000. There are no riders and my annual premium is $545. Based on the guaranteed surrender value, I will break even at the end of 52 years. If I add in the non guaranteed surrender value, I would have made a modest 5.49% XIRR. I have already paid for 22 years and based on the projected values, I could ‘earn’ up to $22,503 and achieve a 4.83% XIRR. Not too bad but we all know that projected values are always very optimistic numbers.

After checking with my agent, the actual net surrender value is $17,147. That’s about $5,000 off from the initial projected value. If I translate that to XIRR, it is about 2.66%.

What does this all mean? If I compare this against a investment portfolio, the returns are nothing to shout about. If I compare this to a pure term policy, I can get way more coverage based on the premiums paid. However, if I compare this against the Singapore Savings Bond, the returns are comparable. I also have the added ‘bonus’ of a $50K insurance coverage and the potential to outperform the SSB – I will have another bonus at year 25 which is just 3 years away. Of course, it is not without risk. There is also the potential to under perform and the insurer may fold up. However after 22 years, the risk of that happening is quite low.

Pending unforeseen circumstances, I will likely keep this plan till I pass on. It will make a good parting gift to my children or great-grandchildren.

Do you also own a whole life plan and do you plan to hold it or cash out? I look forward to hearing your thoughts.

Comments

  1. says

    Hi,

    Which insurer is this?

    I’ve been looking up my wife’s life policies surrendered values from AIA.

    So far the values correspond very closely to the projected. One is slightly lower, the other is slightly higher.

    We intend to surrender the policies once they reach 20 years (never near liao) cause that’s when the terminal bonus kicks in.

    Regards,
    FFE

    • says

      Hi FFE,

      No prizes for guessing that my plan is also from AIA. Nice to know that yours is near the projection values.

      Do you mind sharing the returns after 20 yrs?

      • says

        Hi Derek,

        For the 50k policy, currently which is at the end of 19th yr, total projected value is $10769, gross surrendered value is $11298.81.

        For the 100k policy, currently which is at the end of 18th year, total projected value is $21273, gross surrendered value is $21601.62.

        Hope this is useful.

        Regards,
        FFE

      • says

        Hi Derek,

        Just to add on, for the 50k policy, at the end of 20 years the guaranteed value is $10205 and the non guaranteed is $9090, giving a total of $19295.

        Quite interesting that your policy is earlier and it had a lower guarenteed value and high non guaranteed value.

        Guess its down the the type of funds that particular series of policies are invested in?

        Regards,
        FFE

    • Tan Siak Lim says

      Hi FEE,

      a whole life product is not an efficient saving plan. It is meant to provide coverage for life. It is not a good idea to terminate after 20 years. Since you intend is for saving, you have bought a wrong plan to begin with. I wonder why your agent never tell you so when you bought the plan.

      • says

        Hi Siak Lim,

        The policies were bought by my in laws for my wife.

        Even if it’s bought by us, let’s just put it that, we were young and less knowledgeable. Also our needs and financially situation might have changed.

        The honest truth is that it’s easy to look on hindsight and say that things should and could have been done in a certain manner but that takes time and experience.

        No mistakes made are irredeemable . In fact mistakes are only mistakes if we chose to look at them this way.

        We will most probably surrender the policies to go for higher yielding investments. We have sufficient protection already.

        Only reason that we are holding out to Yr 20 is for the bonus payout.

  2. says

    The non guaranteed portion is not surprising. I find MAS oversight on this rather lacking. They seems to be constantly behind in many areas. A rather passive organization that needs a leadership renewal.

  3. Winston Koh says

    Hey Derek,

    Comment on something unrelated to your posting.

    I would prefer to separate insurance and investment needs. If you need to withdraw $$$ for any emergencies, you can just liquidate investments instead of tapping into your insurance policies. This way, you avoid the risk of having your policies lapsing, which can mean no more insurance protection.

    • says

      Hi,

      It’s possible to just take a loan instead of surrendering. But you got to be pretty sure that the loan can make higher returns than the interest of the loan which is typically about 4.5%.

      Regards,
      FFE

    • says

      Hi Winston,

      Thanks for your views. Buy Term Invest The Rest ya.

      This policy was bought by my parents many years ago. When it finally came into my hands, I find it a waste to let it go after paying for over 10 yrs. I treat this as a long term bond fund and the death coverage is just an added bonus.

  4. Frederick says

    I recently terminate my GE whole life. About 10 years back I took a loan against the policy. It came with a 5 % interest per annum. My agent and other agents did not tell me about the penalty when the unpaid loan with all accrued interest becomes more than the surrendered value. The penalty is a lapsed policy which I allow it to happen.

    This is how all these insurance companies make my most of their money. Most people will not have them discipline to stretch to the end of 30-60 years to see their benefits.

    • says

      Hi Fredrick,

      It was similar for my dad as well. He took a loan from his policy thinking that it is his own money. Imagine the look on his face when he has to pay interest for borrowing his own money!

      I can’t remember the exact interest rate but the interest snowballed after 10+ years is huge. I attempted to pay off the loan but when I realized that the interest is paid to the insurer and not channeled back into his policy, I terminated the plan.

      I believe if the premium is small, most can afford and have the discipline to stretch till 30 yrs or more. I am paying a little less than $50 a month and I am pretty sure I can afford to do that for another 20 years. Most plans that I see now starts with a premium of a few hundred dollars a month.

  5. says

    Hi Derek,

    My wife and I have these AIA wholesale life insurance policies as well. They were bought by our parents for us and we decided to keep them (premiums have already been paid for 15 to 20 years). The surrender values grow slowly over time and the returns are low. We actually view them like CPF-OA and only intend to access the cash values in times of emergencies or until after age 55. They should help to bridge the gap between 55 to 65-70 when we can actually access our CPF-RA.

    Cheers,
    TFS

    • says

      Hi TFS,

      Thanks for sharing. That’s also another way to look at it. I’m glad to learn that everyone here with a similar policy are at the very least not losing money after paying for over 10 years, and we all have a choice to continue paying or terminate it.

  6. Ms Grateful says

    Hi Derek

    I bough life insurance with critical illness coverage
    I was diagnosed with cancer last year and the insurance company issued me a cheque of $108k
    The projected returns for 24 years was $106k
    Total premium paid was $34k

  7. Grateful says

    Hi Derek

    I bought 50k whole life plan with critical illness coverage at age 35
    I was diagnosed with cancer last year and was glad to receive $108k from the insurance company
    The projected return for 24 years was $106k
    Total premium paid was $34kThe

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