Disclaimer: I am not a finance professional, all views expressed here are my own and should not be taken as investment advice. You should do your own due diligence when investing.
Quotations provided by insurance companies are lengthy, complicated, and most people don't bother with the details. They simply buy perhaps based on recommendations of friends, or worse yet simply because the insurance advisor say it is a good deal. But if you think about it, why should the insurance advisor say anything else? After all, she only makes money if she sells you the product. If her plan sucks, she won't say it for sure.
When I am choosing an education plan for my child, I tried searching online for advice on how to compare insurance quotations, but I could not find anything useful.
Sure, there were some articles providing advice but they were really basic. Such as, choose an insurance policy with the right time frame, that suits your needs etc.
In my opinion, there are several important things in an insurance quotation you should pay more attention to:
- Total premium paid
- Breakeven year - the first year in which surrender value (at say 4.75% projected returns) > total premiums paid
- Guaranteed surrender value
- Death benefit
These ratios are important in comparing quotations from different insurance agents (in all these ratios, the higher the better):
- Year at which policy matures / Breakeven year
- Total premium paid / Total distribution cost
- Death benefit at end of policy term / Total premium paid
- Guaranteed surrender value at end of policy term / Total premium paid
- Actual % returns per year (based on say a 4.75% projected investment return)
I get at least three quotes from different insurance companies, and I compute all these ratios in a spreadsheet and compare them side-by-side. For those quotations that score the highest in each category, I assign 1 point. At the end, I choose the quotation with the highest points.
What do you think of this method? I believe it is much more quantitative and objective than simply choosing a plan based on how well you relate to the insurance agent!
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