Dear Sir,
I have an enquiry to make regarding the Effect of Deduction after reading your blog. I took out my policy and I am pretty stunned to see the amount that is written under the effects of deduction.
My annual premium is $3,000 and assuming that I live till 65, it will be a full 44 years. I was 21 when I signed the plan.
Looking at it, Total premium paid is $132,000, total distribution cost is $5468, Non-Guaranteed Cash Value at 5% is 205,600 and at 9% 691,800. Effects of deduction is $882,776. I was not told about the effects of deduction when I signed up the plan and looking at it, I am pretty much being shortchanged for the amount of money that I put in.
Kindly advise on what should I do.
REPLY
You can write a letter of complaint to the deputy managing director in charge of market conduct in MAS, as shown below.
http://app.sgdi.gov.sg/listing_expand.asp?agency_subtype=dept&agency_id=0000008384-
The agent has a duty to disclose and explain this important point to the policyholder. It is shocking that the Effect of Deduction is higher than the Cash Value (assuming an investment yield of 9%).
Throw away both your insurance salesman and the whole life plan into the Singapore river and let the sharks, if there are sharks, or the crabs get rid of him or her.
ReplyDeleteHi, The effect of deduction shows the difference between the accumuilation of the premiums paid and the total cash surrender value.
ReplyDeleteIn others words, effect of deduction means that if there is no deduction of all charges, you would have $882,776 at the end of the policy term.
It does not naturally means that the insurance company has short changed you. Because of the compounding of rate of investment at 9% for 44 years, thats why the figure is so large.
What you need to look at is the total distribution cost. It is the accumulation of each year's expected csts, but with no interest added.