FAQ: Benchmark Premium Rates

1. I have calculated the "fair" premium rates for a consumer to pay
for the following life insurance plans:

Level Term
Decreasing Term
Income Benefit

2. Currently, most of the premium rates charged in the market are higher
than the benchmark rates. If the premium is within 20 percent of the
benchmark rate, it is acceptable.

3. Level Term

The policy pays the full sum assured in the event of death during the term. The policy expires at the end of the term, and the coverage is terminated. There is no cash value at the end of the term.

For example, if the sum assured is $300,000 and death occurs during the term, the family will receive a capital sum of $300,000.

A male at 30 can take a 30 year policy to cover $300,000 by paying an annual premium of $987 (see table below).

4. Decreasing Term

The policy pays the reduced sum assured in the event of death during the term. The policy expires at the end of the term, and the coverage is terminated. There is no cash value at the end of the term.

The sum assured starts at the full amount during the first year and reduces each year by a fixed amount until it becomes nil at the end of the term.

For example, for a 20 year policy, the sum assured will reduce by 5% (i.e. 100% divided by 20) each year.

If the initial sum assured is $300,000 and death occurs during the 11th year of a 20 year policy, the family will receive a reduced sum assured of 50%, i.e. $150,000.

This policy is suitable as the insurnce needs for the family will reduce each year as the children grows older and as the family accumulates an additonal year of savings.

A male at 30 can take a 30 year policy to cover an initial $300,000 (reducing gradually over the term) by paying an annual premium of $370 (see table below)

5. Income Benefit

This policy pays a monthly income benefit for the remainder of the term, in the event of premature death during the term. The policy expires at the end of the term, and the coverage is terminated. There is no cash value at the end of the term.

For example, if the income benefit is $3,000 a month and death occurs at the end of 10 years for a 30 year policy, the family will receive a monthly payment of $3,000 for 20 years.

An income benefit is more suitable for the family, as they do not have to worry about investing the lump sum.

A male at 30 can take a 30 year policy to provide an income benefit of $3,000 a month, by paying an annual premium of $1,068 (see table below).

6. Benchmark rates - Annual premium payable for Males

7. Benchmark rates - Annual Premium payable for Female