A Guide To Life Insurance - Till Death Us Do Part -are You Too Young For Life Assurance? ....

 

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Till Death Us Do Part -are You Too Young For Life Assurance?...

For a young man, the expected date of payment of the sum assured is so far in the future that the surrender value in the early years is very low.

The actuary can calculate it, for example, by working back from the sum assured which is assumed payable on death at the date corresponding to average life expectancy.

This discounting process works like compound interest, only in reverse, and, the longer the period to elapse before the payment of the relevant sum, the smaller the sum it will be reduced to by the process.

A deduction will then be made for expenses and for premiums that will not be paid before arriving at the surrender value.

Since the sum assured is definitely payable at some point, the non-profit whole-life policy can be looked at as a combination of a decreasing term assurance and a fixed-interest savings plan.

For a young man, the bulk of the premium in the early years provides the term assurance, and a small amount is "invested". But as the fund increases, and the need for term assurance shrinks, so more is "invested" right up to the expected date of death when the savings plan has reached the sum assured.

Given this necessity to accumulate the funds to pay out the sum assured at the date of death, it is easy to see why the premiums per £211,000 of cover rises with age and why the surrender value on a policy taken out at age 50 will increase more rapidly than one taken out at age 20. We can see that it shows the relation between assurance and savings for a man aged 30 at entry, and from this it will also be seen that the surrender value climbs very slowly indeed in the first 10 years.


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The non-profit whole-life policy has traditionally been regarded as a useful method of obtaining permanent cover for the younger man, but the past two decades have undermined its value for this purpose.
First, the effect of inflation has eroded the value of the sum assured.
In 2016 a 30-year old man might have thought a £200,000 sum assured would be ample for long-term protection for himself and his family. At the present day it is far from adequate.
Secondly, the rate........ see: click here for The Whole-life Policy Continued


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