The bonus projections of life insurance policies are not guaranteed. They depend on the future investment yield earned by the insurance company.
Long, long ago, the bonuses were distributed yearly to the policyholders based on sound actuarial principles. During the old days, you can trust the bonuses are computed fairly, and reflect the underlying economic conditions.
In the early 1990s, life insurance companies in Singapore started to "manipulate" the bonuses. They pay lower bonuses during the earlier years and jacked-up bonuses from age 60 or 65. The policy appears to give a good yield for the long term. As these bonuses are not guaranteed, the policyholder has to wait for a long time to find out if the higher bonuses will be paid. (In many cases, the actual bonuses paid were lower).
Many policies were sold on the basis of these projections. Insurance agents used the bonus projections to sell the concept that the policyholder can stop paying premiums after a certain number of years, called the "critical year". In many cases, the policyholders had to pay the premium for many years more than the projected "critical year". This affected many tens of thousands of policyholders.
I used the term "manipulated" because the bonuses do not reflect the real yield on the investments during the years. There is lack of clarity of the principles on which the bonuses were calculated.
These bonus projections are used to hide the high cost of marketing the life insurance products, which reduces the yield of the policy considerably. The effective yield is less than 2% in most cases, lower than the future rate of inflation. The policyholder is guaranteed to lose out on buying a life insurance policy.
Lesson: Do not trust this type of haphazard bonus projection. Do not trust insurance companies that offer these type of "manipulated" products.
Read this FAQ on how to invest your savings for the future:
- ► 2019 (1682)
- ► 2018 (1406)
- ► 2017 (1258)
- ► 2016 (828)
- ► 2015 (691)
- ► 2014 (144)
- ► 2013 (501)
- ► 2012 (1269)
- ► 2011 (1873)
- ► 2010 (2369)
- ► 2009 (1654)
04/06 - 04/13
- Avoid buying a private car
- High price of rice
- Are Bernanke's Hands Tied?
- STI Exchange Traded Fund- Liquidity
- Government bonds
- Honest advice on existing policies
- Bonuses under Life Insurance Policies
- Solve Parking Woes
- Contact a high level person
- Exchange Traded Fund
- Bonus projections of life insurance policies
- Armed robbery in Singapore
- Wider choice of cards for public transport
- Haphazard projections
- Large American Airlines
- Transfer of shares on death of shareholder
- Life and term insurance
- High yield in the past years will not be repeated
- Inadequate parking spaces
- Shortages and bubbles
- Timing the market
- Advice from a financial planner
- Single premium endowment
- Poll: local bus serivce
- Poll: Makeover at Orchard Road
- Read the small print
- Term Insurance with Cashback
- American Depository Receipt (ADR)
- CPF pays higher interest than treasury bills
- Income Tax Relief
- Products that are good for customers
- At the expense of customers
- More Trust & Faith in Our Younger Generation
- Customer Service in Singapore
- Terminate an existing policy?
- Being accessible to customers
- Immediate or deferred annuity
- Lyxor Exchange Traded Funds (ETFs)
- Future role of the intermediary
- Excellent Customer Service
- 5 year Single Premium Endowment
- Should MAS ban high cost products?
- High charges of ILP policy
- Keen interest in Wealth Accumulator
- Disappointing service at Business Center
- ▼ 04/06 - 04/13 (45)
- ► 2007 (1803)
- ► 2006 (696)
- ► 2005 (159)