Saturday, May 03, 2008

Reasonable expectation of policyholders

NTUC Income has given me the two scales of terminal bonuses (for surrender and maturity/death claims) payable on each of my policy for each year in the future. In total, I have four complicated scales for two policies.

The scales appear to be calculated to give terminal bonus that is slightly more than the cut in the annual bonus. They may suit these policies at the present time, but it is unclear how the scales will be changed in the future to reflect changing cirumstances.

I have asked NTUC Income to clarify the following questions:

1) Will the same scales of terminal bonus apply to all policies in the same series, or will they differ according to year of entry as well?

2) How will the scales of special bonuses be changed in the future, to reflect changes in the investment yield?

3) What are the principles that will be followed to maintain fairness between the policyholders with different entry years and different policy types?

4) To what extent is the higher rate of special bonus guaranteed, as it is intended to compensate for the cut in the annual bonus?

5) Will NTUC Income be prepared to lay out these principles in a transparent manner to be disclosed to all affected policyholders?

6) For policyholders who have suffered a reduction in annual bonuses for a few years since 2003, does NTUC Income intend to use some of the exceptional
surplus in 2007 to pay additional bonuses to policyholders to make good their shortfall (as compared to the projected bonuses at the time that they bought the policies)?

7) Will NTUC Income give an option for policyholders to remain on the old bonus structure, if they do not accept the change to the new bonus structure?

My personal preference is to stay with the "old" bonus structure, as it is more transparent and a higher proportion of the bonus is vested each year.

I do not like the "new" bonus structure as it can be subject to arbitrary adjustments and the terminal bonus can be withdrawn in the future. I am also less confident of getting a higher payout, if the investment yield improves.


ZhuKoLiang said...

i have been following the news, and i condemns the way the NTUC cuts bonuses... :(

Anonymous said...

The explanation is not necessary so long the increased risk is not adequately compensated.Estimated at 4% inflation it should be more than double.Even so, it is still the choice of the policyholders
to stay as they are or opt into the new bonus structure.
No use trying to explain how the new structure works. It is forcing people to change their risk tolerance.
That is why wholelife or endowment insurance are screwed up and they are very risky becuase of this uncertainty that the insurer can play plum pudding with your policies.
In the past there were so many and now the greatest disappointment comes from NTUC. I believe this would not have happened if Mr. Tan is still at the helm.

Anonymous said...

Yes, I agreed. If Mr Tan is still in NTUC, he will protect the interest of the policyholder. I also been affected by their cut in annual bonus. I wonder they still committed as what stated in their website: .....

Larry Haverkamp said...

Hi --

1) A comment on the previous posting which said, "Even so, it is still the choice of the policyholders to stay as they are or opt into the new bonus structure."

Not correct. This is not an opt-in or an opt-out scheme by NTUC Income. If you are a policyholder, you must take the new bonus scheme. No choice.

2) There is some confusion of this new scheme with "income smoothing" whereby the insurance company pays steady bonuses, regardless of its investment returns.

This new bonus scheme is not income smoothing. It is the opposite. It is "income bunching".

The policyholder's steady bonus stream is removed and a hefty terminal bonus is substituted.

(Like the regular bonuses, it is not guaranteed.)


Larry Haverkamp

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