COMMENT POSTED IN MY BLOG (Edited by me)
I just picked up a brochure with big words Single Premium Policy, from a certain company in Ang Mo Kio Hub. I was shocked.
This company has taken advantage of the generally positive sentiment about simple single insurance products. It emphasized in its brochure, an unguaranteed payout of "4.1% p.a." - but if you read the fine print, you "may" get the 4.1% only if you put the money for a total of 30 years.
The brochure cites an example: if you put 65,700 when you are 35 years old (duh.. which 35 year old has so much spare cash), then after 10 years you get a guaranteed return of $76,900. I calculated that this is a miserable return of 1.5% p.a. (the company didnt do this calculation for you. They prefer to mislead and emphasize heavily the non guaranteed figure of 4.1%). I think that 1.5% guarantee is a bit too low for a 10 year simple SPP.
The brochure explained that "up to 4.1% return" can be obtained! But to get the 4.1%, the first 10 year end non guaranteed bonus must firstly be realised (which may not happen), AND secondly, you must let the policy roll on another 20 years, and you get the money back in drips and draps over 20 years. Do note: a lump sum payback is prohibited. You have to put most of the Single premium in that company for 30 years to get 4.1% pa. Who in his right mind would part with $65,700 for 30 years in any company.
I think that companies should not use non-guaranteed figures as a carrot to hook the customers. This is not fair to the consumer! When drawing up illustration, they should use realistic figures.
I have bought SPPs many times before, but the issuers don't normally advertise the non-guaranteed return. In my view, a simple 5 year SPP is acceptable, not the complicated products that give a bad name to the industry.
REX
To 'enjoy the drips and draps" for 20 years you may have to sail with the company for 30 years.If they encounter a storm they may have to jettison your money. And if they hit a rock and shipwreck all your money be gone.That is why you need to be held prisoner for 30 years.
ReplyDeleteI never buy any insurance because I really don't like the non-guaranteed part.
ReplyDeleteI also know right from the start that insurance is meant for protection, not for savings or investment. Hence I (a male) ignored and fend off all those pesky and glib talking agents, even young pretty female ones. Hence better off with term insurance if you are really paranoid about something happening to you.
To have money and security, my principle is to get a good paying job (I don't have do business aptitude, luck or inherited money), save and maybe dabble a bit in the stock market.
There is no different in the way MB is sold in Taiwan and Hong Kong. The only different is Singapore Regulator is blind and left the victimized Singapore MB investor on their own.
ReplyDeleteSgp Govt did nothing as compared to HK and Taiwan.
MAS did nothing as compared to HK SFC and Taiwan.
FIs/FA did nothing.
So during election day, why should we MB investors do anything? They lied about looking after our interest.
It is SAIL from INCOME
ReplyDeleteThe policy is SAIL,it is from INCOME
ReplyDeleteYou will SAIL with them to 'Holland'.
ReplyDeleteNot quite true that insurance companies don't normally advertise the non-guranteed returns. They do highlight such calculations in their projections if I am not wrong.
ReplyDeleteDon't get me wrong. I am not an insurance agent. On the contrary I have also bought SPP and faced many disappointments with the returns falling far short of the projections over the past few years.
In the good old days, you could rely on the non-guaranteed returns to be realistically achievable and more often than not, you get what is projected. guaranteed or not.
In recent years, non-guaranteed returns means just for illustration purposes to entice you to buy, and always will not be achievable, however gloriously they may tell you about past performances.
I have since given up buying SPP.
rex comments
ReplyDeleteAnon. 4.01 pm, what i meant was that the other companies, they usually print a table showing the non guaranteed and the guaranteed values, equal font sizes. (this was the case 5 years ago at least). They don't emphasise and sensationalise (i guess i should have used this word instaed of "advertise") a fictitious figure. IT is up to customer to judge whether the optimist projection or the pessimistic projection will be paid out. Both sides have some gut feel about the stakes.
However i found the particalur plan as described rather misleading, because this is the first time i see a nebulous figure being "sensationalised" just so to hook customers. IT is like saying, hey, i'm giving you 15% interest. But it's not guaranteed, this is written on Page 2 in small fonts. SPP should not keep on emphasising on a fictitious figure, this is not fair. another co. will say, no problem i will up the figure to 7% (and on page 2 it also says "not guaranteed).
Tomorrow i will become a banker and ask for money and say, I'll give you 10% p.a, not guaranteed. I think there's an english word for this - Oxymoron.
REX
In the case of interest-bearing current or savings accounts, the bank needs not guarantee. Interest rate can be changed the next day. In the case of fixed deposits however, the bank does guarantee, until the end of the fixed term. In the case of structured products, there's about a hundred pages of prospectus that nobody can figure out what's guaranteed or what's not until things go wrong and it's too late to figure out.
ReplyDeleteThe SAIL plan do allows a redemption at the end of 10 years just like the Growth Plan that NTUC Income markets since 15 years ago. Its the choice of the policyholder if he or she likes to receive a regular payout over the next 20 years with some extra bonuses given. There is also a surrender value even after the payout starts.
ReplyDeleteProjections of the Growth plan was around 5% to 6% in the past but had dropped to around ~4% over the past few years. It was probably due to the low interest rate environment in Singapore.
I will not say that such a plan is exceptionally bad or evil. For someone happy with the lower risk, yet higher returns than fixed deposit, its actually okay to put part of his/her funds in it.
By itself, the plan may not be bad but for many this product is NOT suitable. For some who have already accumulated their funds and do not want volatility this is a good product to preserve and provide a steady stream of income.
ReplyDeleteFor others who haven't this is a BAD product .
Comparing to FD return is a trap set up by insurance agents,and it is a sales tactic to con consumers. FDs should NOT be the benchmark.
REX comments as follows,
ReplyDeleteDear Adrian Khiat, you're right! I apologise, in fact, the equivalent 4.1% pa, though non guaranteed, can be withdrawn at 10th year theoretically, together with the principal.
Indeed, I do admit, I had mis-read the brochure, and made a serious mistake in my original post, indicating that it is necessary to put 30 years to get 4.1%. The only issue i now have is they shouldn't emphasise a non-guaranteed figure. I think a better way is to announce that "to-date, xxx has always paid the higher figure for the interest upon maturity although this is not a full guarantee". For me, I always like to ask for statistics before buying, but somehow they never print it in b&W so hard to believe..
I understand that soon many companies might not pay the high-estimate of the interest anymore, therefore to continue empahsising an unguaranteed 4.1% is rather deceptive.
I also agree with Adrian that if equivalent of 4.1% p.a. is actually paid out after 10 years SAIL is ok and reasonable investment.
I suggest that the host blogger might remove all the 11 postings and the entire original post as it could be be confusing, sorry...
btw Adrian.. i went to your blog and i like it. I have bookmarked it and will drop some comments soon.
REX
The SAIL ad misleads. Is should highlight the risk too by using words ,"it has the potential" and not stressing the the unqualified return.
ReplyDeleteMAS should not allow this as many people can fall for it like the minibond.
In this environment 4.1% is hard to achieve.
Well, misleading ads are the norm. Have you people ever received flyers from property developers telling you that such and such a project is very near to MRT, good schools, food centres etc? And they also drew a 'distorted' map to show what they mean. In reality such facilities and amenities are way out of the radar of your imagination.
ReplyDeleteSo, who oversees misleading ads? Not MAS surely.
Rex comments,
ReplyDeleteuh.. dear anon 10.21, i am not sure if it is fair to compare sail with minibond. Minibond is tied to a lot of american private FI entities, if any one go bust you lose everything. On the other hand, for the spp's like sail, issued by singapore institutions, you lose everyting only if that institution go bust. the captial guaranteed is against the stability of the issuer which in this case is supported by government of singapore... so i see it as safe, really as safe as an F.D. only difference is that the interest rate is variable between 1.5% and 4.1%, like gambling in casino. but i agree that they should not highlight so much on a non-guaranteed amount, because, 10 years later they might just pay you 1.5%, if you lose the gamble...there is nothing for you to argue.
Since my original posting carried a major error alluding that it takes 30 years to get the 4.1% i suggest that Mr Tan may remove the entire posting plus comments as a neutral party.
REX
REX,
ReplyDeletethe guarantee is as good as the issuer and it is not guaranteed by a sovereign ,.If US FIs can go bust so can NTUC. Many insurers in UK went bust and so are well known names in Japan.
The ghament can BAIL out those it chooses but it is not a guarantee.
I didn't compare the SAIL to minibond but the ADs which misled the investors.
Are you a moron? It is not an Oxymoron.