Tan Kin Lian's Blog: Poor yield on life insurance policy

Tuesday, December 08, 2009

Poor yield on life insurance policy

A policyholder paid premium for 21 years under a whole life policy and obtained a surrender value that represented a yield of less than 2%. The insurance had advertised an actual yield of more than 5% for other products of similar durations.

The policyholder was unhappy with the poor yield on his policy and asked for an explanation. He was told that it was due to the specific type of product, which provided high coverage. In my view, this should not account for the large difference in the yield.

It is likely that this policy was given a lower yield due to the restructuring of the bonus. As the bonus varies for each policy, it was difficult for the policyholder to know if he had been given a fair rate of return.

4 comments:

Anonymous said...: The best kept secret was a misrepresentation and intended to beguile potential customers to believe that the future yields will be as the past. MAS should have stopped them for it is misleading.
Anyway, some people will do anything to get what they want even to use somebody's backside skin for their face.They may even crawl and beg and subject themselves to all humiliation to get what they want.; December 08, 2009 10:22 AM
Anonymous said...: That's why the best kept secret was quickly removed from the website in less than 1 month or so. Cannot even find the info in the internal intranet.

If you're serious about saving for retirement or building wealth, you can forget about wholelife or regular premium endowments.

Look around for cheap group term, e.g. $64/mth for $500K coverage against death, TPD and terminal illness until 65 yr old. Hint: most S'pore guys can buy this and also for spouse / kids.

Compare with $600/mth for 25-yr limited pay wholelife. So what got CI cover? With regard to cancer, which is usually the uppermost on customers' minds, do you know how difficult it is to claim? Usually need to be Stage 3 cancer already, else insurer will ask plenty of questions, tell you go to their panel of specialist for 2nd opinion etc etc. Some cancers such as breast, ovarian, prostate and skin must even be spread to other organs or metastasized i.e. Stage 4, before can claim.

If you take the difference of $600 and $64, and DCA into a low-cost (TER<0.5%) investment such as STI ETF, after 25 years at just 5%pa, you will get $307K. I doubt if the wholelife will be able to beat this when you surrender your policy after 25 yrs.

Remember, financial crisis will always happen in cycles every few years. While insurers have been busy cutting/restructuring bonuses during Asian financial crisis, dot-com bust, SARS, 2008 financial crisis etc. you should be taking advantage of buying more good quality investment at low prices via DCA.
Why sacrifice your potential retirement savings to those who are quick to cut but miserly to reward?

Ex-Con; December 08, 2009 2:44 PM
Anonymous said...: The company is desperate to be #1 and you know any company that is desperate they do anything. And being #1 only one company is obssessed becuase it wants to outdo its predecessor.
No company in its right sense will try to capture the number one share if they have to compromise the quality of their business, ie any oh how sell, any oh how products.
Other than the shameless best kept secret there was this "honesty is the best policy'. The fact is making this claim is itself dishonest becuase there no honesty in claiming the best kept secret as theirs'.
Now the 'made different' is deluding the public that it is better than other but the truth despite being made different they are no different from the rest, or even worse. Look at the way the agents are pushing the products ethics and truthfulness thrown to the wind.If that is the difference, maybe the tagline aptly describes the behaviour and the culture of this company and their agents.; December 08, 2009 8:15 PM
Anonymous said...: Never buy insurance for investment yield. You can never get one.

Buy insurance only fo its protection part.; December 09, 2009 6:02 PM