We read so much on this thread about corruption without giving one thought to the corruption which is the Life Insurance industry with policies designed to get so expensive that, if you pick the wrong one, it's most likely you'll cancel it before your demise meaning the company keeps all that you've paid into the insurance plus whatever return they've made investing that money, not on your, but on their behalf.
We're looking at our life insurance at the moment and got some prices and, if you don't set it up correctly or understand what's going to happen over time to your premiums, you/your family will almost certainly never back it until the end of the term without cancelling it.
If you take out an "Age-Related Plan" for $250,000 until from 60 - 80, the monthly premiums start at a nice $140 per month. All good and manageable... so you think but, by age 75, those monthly premiums have risen to $1,450 per month and, in the last year that you're covered, have reached $2,200 per month. In fact, even though the insurance company has had the "use of your money" for twenty years, the total accumulated premiums you've paid for that $250,000 cover is just over $225,000.
And, although it costs more initially per month to have a "level policy" where the premiums don't rise, you can get that $250,000 cover for $480 per monthly or a total accumulated premium amount of $125,000.
But there is another option.... insure yourself by taking out a smaller level policy of $100,000 for 20 years at $185 per month. When you retire, use part of your KiwiSaver (say $50,000) to insure yourself by putting that money into a growth managed fund with it making 5% after tax and fees. Through the magic of compounding interest, not only you won't have to contribute to it yourself, but after 14 and 1/2 years, your balance would have reached $100,000. Cancel your life insurance policy (it's cost you $32K to have $100K insurance for that 14 and 1/2 years).
Then, you have a decision to make, don't contribute anymore yourself and your balance has grown to $140,000 by time you're 80 or deposit the $185 per month you were paying for insurance, and your balance has grown to $155,000.... not a bad return on $32K and far better than living until you're 86 and not insured.
www.nzherald.co.nz
