Tan Kin Lian's Blog: Poor return from endowment policy

Saturday, June 05, 2010

Poor return from endowment policy

Dear Mr Tan,
In 1995, my mother was sold an endowment product. The policy is maturing in about 5 years time. By that time, she would have paid a total of $16,000 in premium for the life policy and $2,000 for the critical illness rider. The insurance company said that the guaranteed payout after 21 years is $14,000 and the projected payout is about $16,000.

This is really a ridiculous situation. If she had left her money in FD over 21 years, she would have got a better return than this endowment product. This product is giving a negative returns over the 21 year period! At that time, my mother was not working and the premium was all she could afford. It is sickening that there are people out there who will even try to milk money out of such poor people, as the agent sold the policy as a "savings plan".

Is there any action that I can take against the insurance company? The agent who sold the policy has long since vanished.

MY REPLY
I agree with your views. A fair return for 21 years should be 3% p.a. This would give a maturity benefit of $21,800, instead of $16,000. Another insurance company has advertised that it gave a return of more than 5% over a similar period in the past. This would have produced more than $27,200.

I suggest that you write a complaint to MAS and to the newspaper.

22 comments:

Createwealth8888 said...: Me too. Poor return on endowment policy

http://createwealth8888.blogspot.com/2010/01/insurance-enhanced-endowment-policy.html; June 05, 2010 4:44 PM
Anonymous said...: Most long-term (i.e. 20+ yrs) regular-premium endowment returns are 2.5%-3% per annum.

That it would be less than 1% TOTAL gains over 21 years, or even negative gain, means 3 possible things:-
1) The endowment is an anticipated one, with regular cashbacks or "dividends". If policyholder takes the money instead of rolling back into the policy, then will have very detrimental effect on the maturity value. 50% of projected value for anticipated endowments come from NOT cashing out the cashbacks.

2) Attaching riders to the endowment e.g. critical illness, hospital cash, etc. All these take away the premium for savings into the main endowment.

3) Policyholder may not be of "standard life" i.e. some health problems and more of the premium was taken away to hedge against higher risk.

BE IT AS IT MAY, ENDOWMENT IS AT MOST FOR PRESERVING CASH, NOT FOR GROWING YOUR CASH TO MEET FINANCIAL GOALS. THEREFORE, ENDOWMENT MAINLY FOR RICH PEOPLE WHO ALREADY HAVE TOO MUCH SAVINGS AND FD'S AND DON'T KNOW WHERE ELSE TO PARK THEIR CASH.; June 05, 2010 5:14 PM
Anonymous said...: You can sue both the agents and the company. The agent is still liable even he or she has left the industry.The agent cannot escape. There is no time bar.
It is better to sue the company and let the company deal with agent. Reporting to MAS is useless. They will taichi you until you are tired and give up.; June 05, 2010 5:23 PM
Anonymous said...: They have to wait for 15 years only to realise this is the return from the endowment policy! And all these years (they now admitted being tricked by the agent) they thought it was a savings plan offering better returns. This is cruel to those who have not much money.

Even if there were such a thing (there is none of course) as a FD with 10 year maturity at a rate of say 3%, I would not put my money in it. 10 years is a long time and anything can happen.

What more for an endowment policy where nothing is guaranteed.; June 05, 2010 6:00 PM
Marketing Dissertation said...: it's good to see this information in your post, i was looking the same but there was not any proper resource, thanx now i have the link which i was looking for my research.; June 05, 2010 6:31 PM
Anonymous said...: Actually endowment is a scam product.
You can design a very much superior 'endowment' with a term insurance and dollar cost average a unit trust or ILP of your choice. If you don't need insurance just dollar cost average the fund.
The scam is insurance company and their insurance agents like to con you that endowment has protection which to many people is an extra , redundant. Secondly, the premium is invested in a one size fits all portfolio which may not be suitable for your circumstances and needs. Nevertheless the agents and the company peddle them as 'saving' product which is a scam.
For this case after so many years you then discovered that it is a scam product.You have lost so much time and the return is so negative, you have every right to sue the agent.
To prevent yourself from being conned it serves you well to seek review from an independent and competent adviser to check if the products you bought from insurance agents are scam before it is too late.
You can seek FISCA for help if you are not sure of the products you bought or if you are going to buy.
Whole-life , limited whole-life, endwoment , anticipated endowment disguised as cash back are scams.You don't have to believe me. Check and see for yourself. You will also know who your agent really is, untrusted, dishonest, incompetent and not sincere as you thought he or she was.
It is time consumers wake up to know that you are not getting fair dealing outcome although ALL insurers and agents are supposed to deliver after MAS issued the guidelines.
As for MAS, they should know that all those guidelines issued are only implemented for show BUT NEVER ENFORCED by insurance companies. This is self regulation and their excuse for NOT enforcing them is they are not ready; the agents are still not properly trained, not up to standard, still only know how to push and peddle products.We heard this 10 years ago when CEDLI was introduced. Not surprised the same excuse will be heard 10 years from now.
MAS has been conned by the insurance companies. They have no sincere desire to provide fair dealing to consumers. They are only interested in their bottomline.They used the greedy agents to peddle these toxic products to unwary and trusting consumers and their own policyholders and use them as traffickers or drug mules.
If MAS is serious about the guidelines they have to have safegaurds against abuse by insurance companies. Audit them, fine them and jail the CEO if breaches of the FAA are found.This will then send a strong message and Not wayang to hoodwink consumers that they are protected.; June 05, 2010 6:39 PM
Anonymous said...: Should not include the critical illness rider to an endowment policy. It will eat up the returns very quickly.; June 05, 2010 8:33 PM
Anonymous said...: Lots of money is used to fatten other people's pocket and pay for the insurance portion.; June 05, 2010 9:29 PM
Tan Kin Lian said...: The complainant has confirmed that there were 6 payments of $1,000 during the term. The total payout would have been $21,000. This would have met the return of 3% that I have projected. So, the return was quite reasonable after all.; June 05, 2010 9:34 PM
Anonymous said...: Mr Tan,
If the return of 3% has been quite reasonable, then why did the complainant complained?; June 05, 2010 10:11 PM
Anonymous said...: Mr. Tan, moving forward endwoment will give only 2%+ at best and anticipated cash back will give 1.5% after 25 years.
Insurance will hoodwink the consumers that they are better than the bank.MAS in January banned comparison with the bank rate but ntuc agents still use it at roadshow. MAS should send mystery shoppers to catch them red handed and see what their CEO has to say. I am sure he will not show his stupid grin with rat eyes when he kenna asked for explanation . Let hear waht he has to say about top down guidelines he is supposed to ensure that it is permeated down.; June 05, 2010 11:04 PM
Anonymous said...: It is always good to put such articles in the blog because you always get all the anti-agents, anti-insurers people to spew their negative views quicker than you can bat an eyelid, despite them not knowing all the facts.; June 06, 2010 1:04 AM
Anonymous said...: Hi, I was the one who wrote the original article. Just to clarify the projected maturity value after 21 years of 14k-16k is *inclusive* of coupon payouts. As of now, my mum has received 5 coupon payouts of $1000 each. Assuming the 6th coupon payout is accumulated/"reinvested", the maturity value is 9k (guaranteed) and 11k (non-guaranteed). So the total payout inclusive of coupons is 14k-16k.; June 06, 2010 8:20 AM
Tan Kin Lian said...: The complainant scanned the revised benefit illustration to me. It showed that the total maturity benefit to be $11,600 (inclusive of projected bonus). With the payout of $6,000 over 18 years, the total is $17,600 as compared to total premiums (exclugind riders) of $15,876. The return is probably less than 1% p.a.

Inclusive of riders, the total premium paid over 21 years is $18,320 giving a negative return. The coverage provided by the riders is quite poor.

So, this is really a bad deal after all for the policyholder.; June 06, 2010 8:58 AM
Anonymous said...: Anon, June 06, 2010 1:04 AM,

Facts are plenty.. Do you think this product is good even after correction? Anti agents and insurers will always happen because they are not to be trusted. Insurance companies are not what you think. They are the worse. Without their greed the agents won't be greedy. They work together each with a knife to rob the consumers.
The endowment was taken up many years ago. Try take one now and see what kind of return. if you have bought a revosave ask the agent the return. They won't tell you or they don't know. They will tell you about reinvestment and all the crap and the insurance coverage, how many times it gives. Is insurance you buy or saving you buy? Both? a load of crap.This is how insurance companies con people and give enough commission to agents to make them brave enough to lie and con.
This is no saving plan nor protection plan but a plan to con consumers.; June 06, 2010 9:08 AM
Anonymous said...: Anon,June 06, 2010 8:20 AM,

You can bring this up to the company if you have evidence that your mother was misrepresented and mis-sold.What is written in the fact find form? How did your mother buy? Was she prospected by the agent? Was she advised by the agent not to disclose details so that the agent can trick her into ticking choosing product advice option for her.Was your mother warned of the consequence if she declined to disclose personal details?
What about the product? Was she told that the coupon payment was return or refund of part of the premium and NOT interest payment earned? Many women were conned into buying this anticipated product and they had impression or were made to beleive that these coupons were interest payment. This is misrepresentation.
You can still hear agents pitching although not directly that these coupons are guaranteed and they are interest earned.I heard this at Bugis Junction when ntuc agents had roadshow there. The big poster even suggested that.
The problem is the policyholders don't know until someone reviews for them.Normally it is too late. Time and money lost already.
I suggest that those who bought this anticipated endowment disguised as coupon, dividend or cashback plan to have their plan reviewed to check for mis-selling and misrepresentation. The fact find forms should have all the evidences to sue the company and the agents.
See FISCA about it.; June 06, 2010 10:19 AM
Anonymous said...: Hi, to address the many questions posted:

Q. Evidence that your mother was misrepresented and mis-sold?
A. It was definitely a misrepresentation. Unfortunately, it's her word against the agent. My mum cant do anything much more than basic maths and to her knowledge it was a saving plans with the insurance company.

Q. What is written in the fact find form?
A. There was no fact find form. This was done in 1995.

Q. How did your mother buy? Was she prospected by the agent?
A. "Recommended" by a relative. Thanks a lot (sarcasm).

Q. What about the product? Was she told that the coupon payment was return or refund of part of the premium and NOT interest payment earned?
A. Definitely NOT. She was told that the coupon was a bonus/interest. Only a decade later when I was old enough to read up on such stuff did I realize and told her it was more like a refund of the premium.

Q. Many women were conned into buying this anticipated product and they had impression or were made to believe that these coupons were interest payment.
A. Your statement is 100% accurate

Summary:
She bought a $10k endowment policy, paying $63/mth over 21 years for the main plan and $10/mth over 21 years for useless riders. Apparently, the plan only considered $4k as the base value and gave out interest on that value! The $6k coupons ($1k every 3 years) that were withdrawn and not accumulated did not earn any interest. She thought the coupons were interest/bonus and happily spent them away. Based on guaranteed maturity value, we lose money (premium paid < maturity value + coupons collected). Based on projected maturity value, we break even... barely.; June 06, 2010 2:03 PM
Anonymous said...: MAS is not protecting the consumers. Your mother is not alone. There are hundred of thousands of consumers whether they are educated or not bought on trust and NOT on facts or information. Therefore informed decision is out and MAS has us beleive that consumers can or consumers can be educated to be savvy to make informed decision..You can't let alone an hour of conmanship by insurance agents.
It is like a doctor selling you a Panadol and tries to convince of the features and benefits of the Panadol and you buy based on information fed to you and you make an informed decision.Of course not.You can't understand the chemistry. You just buy trusting the doctor is telling and giving the truth.
MAS must realise this. There are so many anecdotal evidences that consumers are not savvy and cannot be savvy. It is also no point to be savvy if it is not your trade.Financial products are complex and whoever dispensing the advice MUST be competent and honest. Insurance agents are not qualified even on insurance.Many of them are not interested to be qualified. After all they are only interested to push products for commission.
MAS must ban commission.; June 06, 2010 7:38 PM
Anonymous said...: anon June 06, 2010 2:03 PM,

do you realise that your mother was considered a savvy investor? Do you agree?
You see if a product is pushed up front and there was no fact find and the prospect agrees to a product advice option, ie.not giving personal details and declines advice.

Of course I know that your was not savvy and clueless about insurance and she was pushed the product which she had no idea and she was misrepresented and mis-sold she has ground to sue the agent and she should lodge with MAS. Circumstantial evidences point she was mis-sold and therefore she was cheated.
Should seek FISCA or CASE for help to lodge the complaint.; June 06, 2010 10:57 PM
Anonymous said...: How old is your mum? If she is past a certain age, why does she still need to buy an insurance policy?; June 07, 2010 9:29 AM
Anonymous said...: Was surprise to read about this. I myself is a victim of the endowment fund too. My parents brought for me and my bro when we are 18 and 16 respectively upon my dad's fren (agent recommendation) projected return then was about 30+K based on the 10K insurance policy. That attracted my parents to brought the policy I suppose. I started to pay for the policy when I started working 10 years back.

With the insurance saga last year, my bro encashed with lost of 2-3K. I didn't, which I regreted now. Recently I received a letter stating that upon maturity which is in 2 years time, I would be only getting 15K+ return including the 6K bonus stated. I did my sum just now and realise that I am paying $79.60 a month and me too make a loss. Tonight will go back home and checkout on the policy details. Likewise I have just requested for the online account to check it.

Do you all think I should cash out instead of continuing until maturity? I think I have a rider to the plan too.; June 07, 2010 4:43 PM
Anonymous said...: Anon June 07, 2010 4:43 PM,

Check if the extra amount you WILL get at maturity is more than the premium you will pay in the next 2 years and the interest is more than 3%. If it is more , then pay and hold till maturity . If not cancel it.
I can see your parents were not savvy consumers and yet the insurance agent treated your parents as savvy. I beleive your parents bought without knowing what they bought except it was some kind of 'saving' plan.It was losing plan as it turned out.
Even without the fact find forms it is clear that the agent mis-sold and misrepresented the products to your parents and therefore it is considered cheating.You have a case against the agent if you can prove that your parents were not insurance savvy, your parents trusted the agents' words that it was saving plan, and that your parents definitely didn't make an informed decision. Your parents were cheated by the insurance agents.
I wonder what MAS is doing about the unethical practices of insurance agents.It is sad that consumers only discovered that they were cheated after so many years.MAS seems to pretend not to see and hear while the crimes of insurance agents continue till today.
I suggest that you report this to the insurance company and same copy to MAS.
Remember this. Never buy from someone you know especailly relatives when you DARE NOT to ask questions.; June 07, 2010 5:44 PM

Saturday, June 05, 2010

Poor return from endowment policy

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