30 March 2012

Insurance Saving Plan: "pay" 6 years and "cover" 20 years - Personal Experience Sharing

Finally, my "pay" 6 years and "cover" 20 years insurance was matured last year. Let me summarise what I receive from this so-called "Education/saving plan" in this article.

Background:This insurance was bought 20 years ago.
Premium around RM330* annually.
Sum of insure is RM10,000.00.
Purpose: A gift from my parents for my education (supposedly).

Problems:In the 15th year, I was too free, so I bring the insurance policy to the insurance company to ask some questions. But I had been informed that this insurance was going to terminated if the Surrender Cash Value became negative (Surrender Cash Value = Total Cash Value - APL ).

Note: Automatically Premium Loan (APL)
Actions:Since I do not have any insurance, I decided to top up some cash in the insurance to increase the total cash value. In fact, I also curious what I will receive at the end of this plan.

Total premium in first six years: 6x330 = RM1980.00*
+ the top up premium:          RM 800.00*
Total premium paid    RM2780.00*

On its maturiry date:
Actually, total cash value is more than RM10,000*. But the interest of APL also quite high and the total of APL (total loan + total interest) is around RM8000*.

So, what I get is around RM2K* plus 20 years life insurance coverage with sum of insure of RM10,000 from this plan.
Note: Sum of insure is payable when very bad thing happened on me.
Points of view:I still believe all insurance products have their pros' and cons'. If I know APL matter early, I will never use APL. If I did not use APL, this saving plan should give me IRR around 6%. But we should bear in mind that before 2000, our FD and EPF also got very high interest (should be > 6%). Therefore, nothing is very attractive.

Conclusion:Objective of this plan does not accomplish. I finished my bacherlor's degree with free ptptn loan (waived) plus some pocket money from my parents. The total "return" of RM2k++ is actually less than my one semester ptptn loan.

But if you still have such policy, I still encourage you to topup some more premium (or even pay the premium annual or clear all APL) to reduce APL which normally has higher interest than our fixed deposit (FD). Termination of any insurance plan is not encouraged because you need to pay commission again to agent for any new insurance plan in the future. Unless, it is really very not suitable for you, you know what you are doing and you are just getting started to pay (less than 6years). However, do consult an independent financial advisor and insurance company before doing such decision.

That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage.

Written by: Xaivier Chia

*All the amount is approximately with 10% tolerance.

p/s: Currently, my friend also terminated her Etika Saving Plan after I asked her to inquire some information from the company directly about the plan. Total loss of more than 80% of the premium paid is sure due to early termination. Just like any purchasing, doing sufficient homework can save lots of time, money and troubles.

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