Life insurance as investment???

Bought a life insurance around 15 years ago and recently wanted to stop it since I don't have dependents now. If I stop it, the cash value plus dividends is above premium paid to date. Insurance agent advises me not to stop and gave me projected calculations of cash value and dividends if I continue. The table shows an average of 3% return per annum. She said it is better than a number of low risk investments currently. Pls note that the premium is fixed and does not increase with age. Is it possible that life insurance can worked its way to become an investment with a respectable return rate like 3% or am I missing something? Always thought life insurance has high cost and thus not a good investment - more of life element. Any advice?

Hi Retired,


Life insurance ranges from those highly geared towards protection with a little savings element to those with a higher savings element and less life coverage. If you're getting a 3% return per annum it would have to be a higher savings element plan.


However, the rate of return is not constant throughout the life of the plan. Starts off negative at the start, i.e. it's worth less than the premiums you put in, to later when it breaks even to even later when it's worth more. It's a curve and not a straight line.


If the yield only reaches 3% when you're 99 then that's not good. If it's when you reach 70 then that's better, but may not be as good as you would want or need.


To complicate things further, sometimes the average rate of return peaks at a certain age, depending on the plan.


Ask your agent to work it out for you. I can do it but I'll need the figures.


What you should really be looking at is your portfolio as a whole. Would you have enough if this returned 3% p.a? Do you need more to live on? Etc. If you've got enough you can use the life insurance to diversify your portfolio as the returns can be more stable than other forms of investment. However, if it isn't enough then you should cash it in and put the money where it'll get you more than 3% p.a.


To summarise, you need to look at the yield curve of your life insurance plan and see how it fits in with your other investments and your needs.

Thanks, Ed. Very clear response. Looks like my agent is not kidding me though his explanations came over far from clear as yours. 3% return on this life insurance fits well with my portfolio as a whole. I know it is less than the usual recommended 4% but this is a pretty low risk "investment" and is a substantially small portion of my disposal assets.


I have another life insurance policy for US150,000 and have decided to reduce this amount to USD100,000 which is equivalent to the critical illness coverage riding on this policy. The agent has calculated that I will "lose slighty" as cash value is a little less than premium paid to date but since I have enjoyed the "insurance" element for the past years and am only reducing coverage, I am fine with this.

"Thanks, Ed"? I'm not Ed.


Apart from that what you say makes sense and sounds okay.

My apologies, Chris. Thanks a lot again. Your advice is always much appreciated.