Friday, June 04, 2010

Discounted value of bonus on life policy

Dear Kin Lian
I have a GE policy with bonus @ $14,000. Recently I applied to withdraw the bonus instead of cancelling the policy or take a loan. Apparently I am granted only @ $8,000.


I was informed that my sum assured still remain the same. What I am disturb about is what happen to the balance $6,000. Will I loose it totally just because I draw out $8,000.

REPLY
A bonus of $14,000 is the amount that is payable on the maturity date of the policy or on death. So, this is an amount payable many years into the future. If you wish to withdraw the bonus now, you will get the present value of the bonus, i.e. the discounted value. In your case, the discounted value is $8,000. This is probably a fair amount depending on the rate of discount used to compute it.

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