Tuesday, June 15, 2010

Poor Return from New Plan

A customer sent the benefit illustration for a newly introduced plan called Reach. I analysed it as follows:

This is a 10 year Reach policy with an annual premium of $5,000 payable for 5 years. Subsequently, the policy pays a cash coupon for the next 5 years. The coupons can be accumulated with interest. Based on the non-guaranteed interest rate of 3% per annum payable on the cash coupons, the total amount at maturity represented a yield of about 1.2% p.a. For a 10 year investment, this is a poor yield and is not even guaranteed.

The same company had a single premium plan, called Growth, which gave a non-guaranteed yield of 2.7% or 3.5% over 7 years, which was more acceptable. It seemed that the old plan gave a better return, compared to the new plan.

It is better for the consumer to invest in the STI ETF, which is flexible and gives a better long term yield.  Read my financial planning book for more information.


Anonymous said...

I was pitched that REACH can give up to 3% upon maturity if coupons are reinvested at non guaranteed 3% after 10 years. Can REACH give 3%? Assuming it can , it is still very poor. At best it only preserves capital. At worst it is a rotten product intended to con the already conned CONNEDsumers.
However, REACH cannot reach 3% unless the coupons are reinvested at guaranteed 3% which is not. Commonsense tells you it will not.If it can why not guarantee the 3%, right? WHY? Why? because it cannot. So don't be taken for a ride...Don't be a dummy..don't be an idiot.... don't get conned.sphro

Anonymous said...

Make sure they don't reach you otherwise you will be conned.

Tien Tjuen said...

At maturity, the policyholder will receive:

a)115% of sum assured less total Cash Benefit paid out before maturity, less any loan or debt

b)Any accumulated bonuses

c)Any Cash Benefit deposited with Income


I think the cash coupon is just part or extra bonus. the main return is not from the cash coupon only, but also the 115% sum assured.

Please advise.

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