Insurance: Protection vs. Pitfalls – A Personal Take - 2025-02-18

I believe in insurance for the essentials: hospitalization, life, and term – ensuring my family's security if the unexpected happens to me. But those investment only policies? Not so much. I've seen friends trapped in them, paying monthly premiums for decades, only to receive a trickle of returns (RM 2000) that barely justify the effort. Even my ACCA-qualified friend, despite recognizing the poor returns, felt compelled to continue due to the sunk cost – a testament to the complex psychology of money.

Recently, I stumbled upon a financial blogger boasting about an insurance policy for his 7-year-old son: a lump sum of RMB 17,335, promising a mere RMB 520 annually after ten years. Yes, annually! The benefits increase over time, but the returns are shockingly low. This policy has minor death benifits, the most is 2 times the lump sum after 46 years old!

This sparked my curiosity. What if that RMB 17,335 was invested in something like Coca-Cola? At a modest 2.82% dividend yield, the son would receive RMB 488.85 immediately, and that's just the start. Coca-Cola's dividend has compounded at an average of 8.15% annually over the last 33 years. In just ten years, that RMB 488.85 could more than double to RMB 1,070. Imagine 57 years down the line: a staggering RMB 24,500 annually! And if it's passed down through generations, a century later, it could be over RMB 1.2 million.

Years

Yearly payout

10

$1,069.42

20

$2,341.06

30

$5,124.81

40

$11,218.72

50

$24,558.88

60

$53,761.80

70

$117,689.85

80

$257,634.64

90

$563,987.51

100

$1,234,624.03

110

$2,702,713.21

120

$5,916,504.53

130

$12,951,809.24

This made me question the blogger's wisdom. Was it an advertisement? It's hard to believe a savvy investor would choose such a low-return, fixed-income insurance policy.

My message to my children is clear: do your own math. These fixed-return insurance investments, failing to account for inflation, are essentially throwing money away. Protect yourself with essential insurance, but be wary of complex investment products that promise little and deliver even less.

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