A policyholder sent to me a benefit illustration of a 20 year endowment policy bought four years ago. This policy provide a sum assured of $100,000 and requires an annual premium of $6,000. It pays an annual cash dividend which can be re-invested to earn an interest rate (illustrated at 3% per annum).
The first year's premium is entirely taken away. For each subsequent year, the cash value increases by about $5,000. This means that the cost of insurance is $1,000 to insure $100,000. The cost of this cover under a group insurance should be less than $100 a year.
If the policyholder keeps the policy to maturity at the end of 20 years, the benefit illustration shows a return of about 3% per annum, but a large portion of this return is not guaranteeed and may not be realised. If the policyholder terminates the policy at any time, including the 19th year, a large part of the potential gain is forfeited. The cash value in most years is less than the total premium that has been invested.
This type of policy goes against the concept of fairness. Why should a large part of the gain be taken away on the 19th year? Surely, in the case of a participating policy, there is the principle that the policyholder should be entitled to 90% of the surplus, rather than have this share to be confiscated.
It is time for our regulator to look into this type of practices that are quite unfair for consumers. Although the features of this policy is shown in the benefit illustration, the consumers (including those who are well educated) cannot be savvy enough to know about these catches.
I encourage all consumers to join FISCA (http://www.fisca.sg/), to attend the FISCA talk on financial planning, and to buy my book, Practical Guide on Financial Planning. Be educated, so that you do not fall frey to bad financial products in the future (even if you cannot do much about the bad products that you have been sold in the past).
Tan Kin Lian
"Why should a large part of the gain be taken away at the 19th year?"
ReplyDeleteThe whole idea is to hold you hostage for the duration of the term.
This is also to make sure their revenue/profit keeps coming in.
The penalty is you lose if you should stop.
This is a common feature for products with cash value. The moment you signed up you are imprisoned for the whole of the term or for life. Any premature termination means you lose.
The odds are stacked high against the buyer.
Even MAS is helping them with this warning: "Insurance is a long term committment........."
The whole idea is to ensure the income/revenue of the insurance companies is guaranteed for life.
Is it a wonder why the insurance companies continue to roll out PAR products in many variations despite they are well known to scam products? First there are still a lot of suckers/dummy buyers who don't know what they don't know. Secondly, this is to provide greedy unethical insurance agents to con their own policyholders and friends and relatives using trust.
This is a sick industry now and getting worse each day.
There is nothing in the endowment and wholelife products that is not against you. From the moment you buy these products you are doomed for life.
ReplyDeleteThe people who benefit from these products are the insurance agents and the insurance companies. They both work hand in glove to fleece or rob you of your hard earned money.
The conspiracy of the wholelife product is to lock and rob you for whole life.
Wake up, consumers and consult FISCA for the truth. You will be shocked to find out how your so called trusted agent rob and drain you of your money. You will be shocked to discover that you were never protected adequately and you were walking around with a time bomb. Luck that you are still alive and can continue to provide for your family. What if you drop dead before FISCA can review for you? Will your family continue to live as if you are alive providing for them? Get a quick check up. You have been dumped with rubbish insurance good for the trash. Before it is too late ,join FISCA to review your existing policies.
You might have been keeping a snake in your closet for a very long time.
"The cost of this cover under a group insurance should be less than $100 a year"
ReplyDeleteHi Mr tan, is the quote a norm? For personal insurance cover for death and critical illness for 100k, how much will be the premium.