Tan Kin Lian's Blog: Yield of 0% for 21 years of premium

Friday, September 04, 2009

Yield of 0% for 21 years of premium

Hi Kin Lian,
I have been following with great interest comments concerning the need for the insurers to be more transparent about the participating bonuses and surrender values and other related matters made by you and other distinguished professionals and the insurers themselves.

My wife is personally involved with her own policy as she was considering cashing out
her policy and using the money for other modes of investment. We were disappointed that the insurer would not bother to explain how they derived at the surrender value even though the offer is at odds with the documents that their office furnished my wife earlier.

Their financial planner (sales person really) briefly said that the difference between what we should be entitled as per the document and what we have been offered is due to the underlying value in their investments that have been impaired caused by the global financial crisis.

We would be agreeable for you or another person to use our case as an example of the lack of transparency in the industry, if indeed this is the case here.

SUMMARY OF KEY FIGURES
Annual premium for whole life policy $2,013
Duration of policy: 21 years
Cash value: $54,070
Yield over 21 years: 2.2% p.a.
Total premiums paid, inclusive of rider premium: $54,074 (yield 0.0%)

After paying premiums for 21 years, the policyholder just obtained the total premiums back. The yield is 0%. If the rider premiums are excluded, the yield is 2.2% p.a.

10 comments:

Anonymous said...: Riders are usually non-participating. So it is more appropriate to calculate excluding premiums for riders.; September 04, 2009 9:42 PM
Anonymous said...: 2.2% after 21 years is not unusual. All wholelife products have around this return.
Wholelife product is NOT a saving plan. Even the so called saving plan like endowment is about 1% higher over the same period.
Policyholders can see that they are risky products whose return also depends on investment. It is risky because the life fund portfolio has too little exposure to equities over this long time horizon.The one size fits all portfolio is not appropriate for you.
Par products have been useless long time ago and it is foolhardy to use them as vehicle for anything. For protection buy term and invest the rest in broadly diversified portfolio.; September 04, 2009 10:04 PM
Tan Kin Lian said...: A yield of 2.2% for the past 20 years is terrible. It is ripping off the consumers.

NTUC Income was able to give a yield of more than 5%. The difference in payout is 40% more for NTUC Income. (This was for the good old days - and may not apply for the future years).

This insurance company paid so poorly (yield of 2.2%) because of high expenses, and inadequate distribution of bonus.

It is so sad that consumers get such a poor return from the participating policies - due to lack of transparency and fairness.; September 04, 2009 10:44 PM
hongjun said...: Wonder what is the company being discussed here.; September 04, 2009 11:31 PM
Anonymous said...: Is the writer getting 2.2% per year or is it 2.2% for 21 years?; September 04, 2009 11:42 PM
Anonymous said...: Don't buy any par products like wholelife, endowment , anticipated endowment and regular ILPs, they are all ripped off products. Ripped products don't give decent return and protection.
This is the reason why after so many years Singaporeans are still under insured and cannot retire.
if MAS does not step in the future will be the same. The recent statistics released by LIA shows the average sum assured sold is $49K and the death claim benefit is $39K. Why so low claim and under insurance is due to the fact that consumers have dumped with whole life and endwoment products by greedy insurance agents.
The agents don't care whether you have the right product so long they get the high commission.
I am sad there are still many conmsumers who continue to be victims of predatory agents.MAS must stop this before another scandal breaks out.; September 05, 2009 12:41 AM
Anonymous said...: Thank you Mr Tan for putting this article up. I am the person who provided the informatiOn. The company is Prudential. Its former head is now heading NTUC.; September 05, 2009 8:05 AM
Vincent Teo said...: This is just another case to reinforce the idea of buy term, invest the rest.; September 05, 2009 1:24 PM
Anonymous said...: My Goodness, if the former head of prudential is now heading NTUC Income then it is no wonder it is spiralling down. I have avoided buying policies from these commercial insurers precisely because I do not trust them. Now that I have bought all my policies from NTUC Income decades ago and then now they change horses in midstream can I sue the management for changing the terms or reasons why I bought them in the first place?; September 06, 2009 11:55 PM
Anonymous said...: You have your right , exercise it. Bring it up to the company that you bought those policies because of the man in charge, Mr. Tan Kin Lian.
Since the new man, the FT, took over many changes were made and all the products started to spiral down in protection and return.
First they talked about 'make insurance make difference' now they realised ntuc is "made different" and it took him 2 years to realise it.
But waht is the point? Made different, so waht? So long their products short change the policyholders and their insurance agents product peddlers, waht value can they add? They only add high commission to their own pocket.
Yes , sue the agents for not informing you and demand the return of your capital and interest.; September 07, 2009 7:29 PM