I refer to the letter from Mdm Dorothy Ballard entitled "Policies similar but returns differ" (Straits Times, 11 Aug 2005).
Mdm Ballard said that the endowment policy that she bought from NTUC Income 20 years ago gave a return on maturity of 5.47 percent compounded annually. A similar policy taken from another insurer gave a lower return of 4.29 per cent.
This difference in return, compounded over 20 years, produces a 14% higher payout from NTUC Income.
I wish to explain why it is possible for NTUC Income to give a better return to our policyholders:
- we are a cooperative society
- we pay lower commission to our insurance agent
- we keep our salaries and expenses at a modest level
- our shareholders receive a modest rate of dividend.
By spending less, we are able to give a better return to our policyholders through lower premium or higher bonus. This can amount to a lot of money over many years.
Many people think that the key factor is skill in investment management. This is not so. Over a period of years, most large sized funds will produce an average rate of return that reflect the economic fundamentals.
We hope to convince Mdm Bollard and other policyholders that it does matter who they choose to invest their long term savings with, and that they will choose a well managed cooperative.
Tan Kin Lian
Chief Executive Officer
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