Bonus based on long term yield

POSTED IN MY BLOG

I find it puzzling that Income said that the yield is unsustainable and they cut the bonus to 1.3%.
I bought a policy for my wife in 2003 when my insurance adviser told me that Income is a cooperative and that strengthened my belief to buy one from Income. Now that trust has been betrayed.

If the yield is unsustainable, is Income saying that all other insurance companies are unable to sustain it also. The annual yield is only declared when all other costs are being deducted.

I understand that in certain years the yield may be negative but policyholders are looking at the long term, of at least 20 years, for the average returns to be in the region of 5 - 7%. If Income wants to pay only 1.3% every year, if for that year the yield is 5%, what is Income going to do with the difference of 3.7%? The compounding effect of this nett 3.7% over 20 years can be very substantial.

And how would policyholders know how much every year they have earned if they are only being compensated when they surrender or a claim is made. Is there transparency?

Already the true cost of insurance is exorbitent and now they still want to cut bonus rates! If they are all out to s*** policyholders then in the long run, it will be only the insurance companies which will suffer, as nobody can be convinced to pay for a high cost for a small coverage.
pete

REPLY
Although the annual bonus has been reduced to 1.3%, Income has stated that they will increase the special bonus to compensate for the reduction. If the special bonus are paid as projected, the policyholder will not be worse off.

In the future, it is better to buy term insurance for the insurance protection, and to invest in a low cost investment fund. This is explained here:
http://www.tankinlian.com/faq/savings.html