Tan Kin Lian's Blog: Terminal bonus is not guaranteed

Sunday, May 04, 2008

Terminal bonus is not guaranteed

Dear Mr. Tan
I always thought that Terminal Bonus is like Annual Bonus which is guaranteed once declared. Hence if my policy year crosses the year that terminal bonus is payable and is declared as per projected, such terminal bonus will be locked in to my policy.

REPLY
The terminal bonus is not guaranteed. The terminal bonus is payable based the rate that applies at the time of maturity, or surrender or death claim. It is possible for the terminal bonus to be withdrawn at the last minute, just before it becomes payable. I do not like a high rate of terminal bonus, due to its uncertainty.

Life insurance company use this "gimmick" to entice customers to buy their products. Many policyholders have been disappointed with the reduction in the terminal bonus after waiting for many, many years. By that time, it was too late for them to change their mind.

3 comments:

Anonymous said...: Mr Tan,

My family, relatives & I bought many policies of NTUC Income. I am disppointed by the change in bonus structure too

We bought policies from NTUC Income because it is a co-operative hence it will be policyholder-focus insead of shareholder-focus. It is also a low-cost operator. All these means that it can introduce good value products, and return more benefits to policyholders.

Moreover, insurance companies are investing in the same kind of assets, largely in bonds, due to regulatory requirements. Hence I believe their investment performance should be largely the same over in the long term. Hence low-cost and policyholder-centric factors are real differentiators to higher higher bonus payouts.

I read that the new bonus structure is more in line with industry practice. It is also industry practice to cut terminal bonus drastically during major financial crisis in the past such as SARS, 911, Asia Financial Crisis, to remain their financial solvency. I have been investing directly in the equity market for the past 10 years, so I am quite certain major financial crisis will occur again in future. Hence I favour higher annual bonus declaration than a significantly higher but uncertain terminal bonus.

I applaud and support your effort to advocate NTUC Income to reverse their position on this matter.; May 04, 2008 6:09 PM
Anonymous said...: If you still remember the time when the companies G>P>A cut the bonus and hefty one too it was from the terminal or special bonus. Like Mr. Tan says , it is gimmick to entice the customers and a feature which insurers can manipulate and know they can't deliver.
It is sad that NTUC has to resort to such unethical tactic to hoodwink the customers.Now ntuc agents are coached and trained not to talk about the return and but to distract the customers with the rubbish frills like retrenchment ,3 times PA benefits, 125% coverage etc etc.But if they are forced to calculate the return they will use the longest period to make it look decent and something which you are unlikely to hold and get.
In the past what set NTUC apart from the rest is the good cash value and protection in the early years. No need to have what vivolife boasts of the 125% guaranteed protection for first 15 years. Then it was becuase of high annual bonus.
Any way, if you buy term and invest the rest you wouldn't have this problem. You are in control, both protection and investment; May 04, 2008 6:18 PM
Anonymous said...: This comment has been removed by a blog administrator.; May 05, 2008 10:41 AM