Tan Kin Lian's Blog: A poor yield on single premium endowment

Thursday, June 19, 2008

A poor yield on single premium endowment

My wife's single premium endowment will mature in 2 months time. She will get a yield of 3.06% for the past 5 years.

During the past 10 years, the insurance company reported that the averge yield was 7.8%. I found the yield of 3.06% to be unsatisfactory, for a participating policy.

Here are some key figures:

Single premium $50,000
Insurance company earned 7.8% for 5 years, giving a total of $72,800
Maturity benefit: $58,100

By giving a low payout of $58,100, the insurance company kept $14,700 for the 5 years, or $2,940 a year. That is a lot of money to keep from the policyholder for the small insurance protection provided by this policy. The actual expenses for this policy are quite low anyway.

If the insurance company had earned a low return, they would have reduced the payout (i.e. cut the annual and special bonus). As the insurance company had actually earned a high return, they should increase the payout to the policyholder on the maturity, instead of keeping a large part of the unexpected gain in the fund. This is the "promise" of a participating policy.

I have raised this matter with the insurance company. I believe that they payout has not meet the standard of "fair and consistent with the actual experience".

7 comments:

Raymond T said...: Hi Mr Tan, is it Company X? :); June 18, 2008 9:12 AM
siewkhim said...: It has to be that Company lah. 7.8% yield for pas 10 years.

We should do the public a favour by informing them to totally avoid participating and investment-linked policies of all forms. Insurers should just stick to provide only protection and nothing else.; June 19, 2008 1:25 PM
Crazy Aries said...: need to clarify, if the yield of 3.06% less than what it projected when she bought this policy.

from my knowledge in the last 3 - 4 yr, all insurance company projected around yield of 3% for 5 years term (single premium endowment).

But i did get return yield of 3.8% from GE of a similar product of same term (matured in 2006); June 19, 2008 6:21 PM
Tan Kin Lian said...: vfocus is probably a person who runs a life insurance company or an agent who sell their products.

It is this kind of attitude that give life insurance a bad name. For this type of people, it seems to be all right to take consumers for a ride.

If the investment yield is low, the insurance company will cut the bonus and reduce the return to the policyholder. If the investment yield is high, they will spend find excuses to avoid paying a higher return. This allows them to spend the money on lavishness.

Life insurance products give a poor return to the policyholders. This is the reason why I have decided to recommend people to avoid buying life insurance products.

I hope that the people running life insurance companies realise that they have a responsility to give a fair return to their customers, so that people can trust life insurance products.; June 19, 2008 7:22 PM
zhummmeng said...: 3.06% is hardly any growth in real term assuming an average inflation of 3.00%. So, is it good? You had worked hard for the money but you didn't make your money work harder.You just preserved the real value.
You should not complain if that was your goal. Or maybe your agent lied to you? or he or she didn't disclose to you? If that was so, you can lodge a complaint with Fidrec for inappropriate recommendation.Check the fact finding form or KYC to see if there was any anomalies. You can consult a third party adviser for review of your case.
When investing cash it is not beating the bank interest rate , it is beating the inflation. (The latest inflation rate is 6.6%, but just for this year). The long term rate is 3.0%.
Don't fall for this often used trick by unscrupulous NTUC agents and other agents..They are not honest and it is typical of salesmen and women who want to sell you something using this ploy to distract and hoodwink you into buying.
You could have gotten 7.8% return if you had invested on your own.There is no need for "smoothing", all yours.; June 19, 2008 10:22 PM
Crazy Aries said...: Hi Mr Tan, i'm a simple man who is happy to get what was promised (projected return).

I never expect the insurance company to give more (if any) cos these seldom or never happen.If not my choice but nothing can be done.

I do invest myself, however, it a long-term thing, some insurance like single premium endowment is still consider good for people like me who opt for short time-frame, capital guaranteed & better return than bank FD.

However, since last year, I mainly save in Flexicash from NTUC.; June 20, 2008 9:44 AM
siewkhim said...: Dear All,

If the former CEO of NTUC Income, a well-known Actuary and an expert in the field of insurance has apparently been taken for a ride, what about we poor hopeless consumers who has already been taken for ride when we buy participating policies from insurers?

MAS, please help us!!!!!; June 20, 2008 11:43 AM