Insurance with Investment, is it worth?

I have been thinking to buy an insurance for my little junior since early of August 2009, however, due to engaged with other issues (Always use as an excuse), it is still nothing happen until now. Based on my understanding, the youngest age you buy the insurance the cheapest price you can get, so it is better to buy the insurance for your child while he or she is still young. To avoid pay more, I had approached an insurance agent last weekend.

During the few hours conversation, he was very eagerly introducing me one of the new insurance product, it is kind of insurance with investment. Initially, I'm really interested when he keep on mentioning:

"Your monthly insurance premium needs to pay for the first twelve years only, then you need not to pay anything after twelve years but your son will still enjoy the benefit of this policy until age 100."

"At the age 20, your son can get a lump sum amount of RM138,885, this can be use as an education fee"

"Other than that, your son will also receive an amount of RM13,600 yearly and he will continue receiving this amount of money till age 100"

Sounds good, right?

To prevent any wrong decision being make, I need time to reflect before deciding. Therefore I had requested some details of this new policy and had performed an analysis on it through the weekend.

Let's see what will happen.

Narrating the whole detail of policy here will definitely bored, hence, I had prepare a summarize note to make the long story short.

Premium payment mode:

Monthly payment: RM1,623.18

But you can choose other options like

Quarterly payment: RM4,776.81
Half yearly payment: RM9,460.86
Annual payment: RM18,550.72

Payment period: 12 years


First benefit:

Benefit - Child
Death – Able to claim the total death benefit, the amount of money will depends on number of years invested
Total permanent disability – Able to claim the total surrender value, the amount of money will depends on number of years invested
36 Critical illnesses – Future basic premium waived, but the benefit will end at 70th birthday

Benefit – Parents (Dad or Mom)
- Death – Basic premium waived, but the benefit will end at 70th birthday
- Total permanent disability– Basic premium waived, but the benefit will end at 70th birthday
- 36 Critical illnesses – Basic premium waived, but the benefit will end at 70th birthday

If nothing happen to the child or parents, the benefit of this policy will end at 100th birthday

After 12 years of Insurance investment

Total surrender value
Best case = RM226,049 (Guaranteed amount you can get= RM94,810)
Worst case = RM203,476 (Guaranteed amount you can get= RM94,810)

Total death benefit
Best case = RM282,289 (Guaranteed amount you can get= RM157,050)
Worst case = RM259,716 (Guaranteed amount you can get= RM157,050)

The amount of money will depends on which year you withdraw, please refer to the table below.

Second benefit:

After 20 years
On the 20th years - Will receive a Lump sum amount of

(Guaranteed amount you can get)
Best case = RM59,385
Worst case = 56,280

(Not guaranteed)
Best case = RM79,450
Worst case = 25,901

Total:
Best case = RM138,835
Worst case = RM82,181

Please refer to the table below.
Third benefit:

On the 21st years and onwards - will receive an amount of money yearly (Interim cash payment (ICP) + dividend) till end of the policy.

(Guaranteed amount you can get)
RM6000

(No guaranteed)
Best case = RM7,600
Worst case = RM2,660

Total:
Best case = RM13,600
Worst case = RM8,600

Please refer to the table above.

After understood the whole situation, I'm doubt on,

Is it worth if I'm investing RM1,623.18 monthly and continue it for twelve years then my son will get RM138,885 at age 20?

Is it worth if I'm investing RM1,623.18 monthly and continue it for twelve years then my son will get RM13,600 yearly from age 21 until age 100?

What will happen if I invest the same amount of money in Unit Trust? How much can i get?

To persuade my mind, I had performed an unit trust investment simulation and it is exactly followed the investment method and amount of money being used in the insurance policy as mentioned before.

Two different scenarios had being simulated,

- Scenario A represents conservative investment - Bond (It can be considered as Guaranteed amount you can get)

- Scenario B represents aggressive investment - Equity (It can be considered as Not guaranteed)

Unit Trust = 12 years investment:

Scenario A:

Investment product: Public Bond Fund
Fund type: Bond
Monthly payment: RM1,623.18
Investment period: 12 years
Total amount after 12 years (Return + capital): RM351,307.88 (Wow, it is better than what I can get from insurance as mentioned before. Total death benefit = Worst case = RM259,716)


Scenario B:

Investment product: Public Regular Saving Fund
Fund type: Equity
Monthly payment: RM1,623.18
Investment period: 12 years
Total amount after 12 years (Return + capital): RM433,355 (Wow, it is better than what I can get from insurance as mentioned before. Total death benefit = Best case = RM282,289)

Unit Trust = 12 + 8 years investment:

Scenario A.1:

Stop monthly investment and keep the money in Bond for another 8 years. (To make it 20 years)

Investment product: Public Bond Fund
Fund type: Bond
Monthly payment: RM0.00
Investment period: 8 years
Total amount after 8 years (Return + capital): RM555,761

Let's follow the procedure in insurance (At the age 20, your son can get a lump sum amount at RM138,885, this can be use as an education fee"), take out RM138,835 from the total amount of RM555,761, the remaining amount of RM416,926 will continue keep in PBF.

Assumed that the yearly return from PBF is 5%, I'll get RM20,826 yearly (Wow, it is better than what I can get from insurance as mentioned before. "Other than that, your son will also receive an amount at RM13,600 yearly, he will continue receiving this amount of money till age 100"= Worst case = RM8,600)

Scenario B.1:

Stop monthly investment in PRSF and keep the money in PBF for another 8 years. (To make it 20 years)

Investment product: Public Bond Fund
Fund type: Bond
Monthly payment: RM0.00
Investment period: 8 years
Total amount after 8 years (Return + capital): RM685,557

Let's follow the procedure in insurance (At the age 20, your son can get a lump sum amount at RM138,885, this can be use as an education fee"), take out RM138,835 from the total amount of RM685,557, the remaining amount of RM546,722 will continue keep in PBF.

Assumed that the yearly return from PBF is 5%, I'll get RM27,336 yearly (Wow, it is better than what I can get from insurance as mentioned before. "Other than that, your son will also receive an amount at RM13,600 yearly, he will continue receiving this amount of money till age 100"= Best case = RM13,600)

Scenario B.2:

Stop monthly investment in PRSF and keep the money in PRSF for another 8 years. (To make it 20 years)

Investment product: Public Regular Saving Fund
Fund type: Equity
Monthly payment: RM0.00
Investment period: 8 years
Total amount after 8 years (Return + capital): RM1,027,423

Let's follow the procedure in insurance (At the age 20, your son can get a lump sum amount at RM138,885, this can be use as an education fee"), take out RM138,835 from the total amount of RM1,027,423, the remaining amount of RM888,588 will switch to PBF.

Assumed that the yearly return from PBF is 5%, I'll get RM44,239 yearly (Damn! It is better than what I can get from insurance as mentioned before. "Other than that, your son will also receive an amount at RM13,600 yearly, he will continue receiving this amount of money till age 100"= Best case = RM13,600)
Since the insurance policy has mentioned my son will enjoy the RM13,600 yearly from age 21 till age 100, it means that, if my son is at the age 60, the total accumulated amount he received will be at around RM544,000, right?

But, if I invested the same amount of money in Unit Trust - Scenario B2. The total accumulated amount he received will be at around RM1,777,160, right?

The variance is RM1,233,160!!!

OK, my mind is clear now.
If I'm a millionaire, I'll set up an insurance company and sell this kind of policy.
Why? Because this is free of cost business and yet you can earn million! WTF!!!

At the end, I decided to reject this new insurance product.