Life time savings

I posted a story of a non-working woman who invested all of her savings in a 21 year endowment policy. She would have paid $18,000 in premium and obtained a return of $16,000 on maturity. This gave a negative return. Part of the premium went into paying for a rider to provide additiona insurance protection, but this was over-priced.

She obtained a meagre return of less than 1% per annum on the savings portion of the premium. The insurance company would probably have earned an average yield of 5% per annum. More than 80% of the gains went into the commission, expenses and profit. The meagre return could not even cover the inflation during the years. To this woman, it represented most of her lifetime savings, which has been denied of a fair return for a financial plan that was traditionally supposed to be trustworthy.

When I think about the million of policyholders who have suffered this fate, I wonder about the harm that the life insruance industry and the advisers had done to the people. Perhaps this applied to only some of the companies and agents, and that the other companies could have offered a more decent return. But, to my knowledge, quite a large number of people have suffered from the poor return.

Even life insurance companies that offered decent return in the past could change their strategy to focus on making profit for their shareholders and agents. Their policyholders would be placed in a helpless situation, unless the regulator steps forward to protect the interest of the public. In some countries, the regulators were appalled by the type of predactory practices and have taken steps to control the excesses.

Tan Kin Lian