Thursday, August 20, 2015

Daylight Robbery

An 55 year old lady went into a bank. She bought a life insurance policy on the recommendation of the financial adviser. She had to pay an annual premium of $40,000 for 5 years, making a total of $200,000.

At the end of 10 years, she is projected to receive a maturity benefit of $236,000 provided that the insurance company is able to earn 4.75% on its investments.

If the insurance company did earn a return of 4.75%, the total premium paid during the 5 years, accumulated at 4.75%, would amount to $291,000. The insurance company took away $55,0000 (this is shown as "effect of deduction") and gave a return of only $36,000 to the policyholder.

If the insurance company did not earn a yield of 4.75%, it can reduce the amount paid to the policyholder and does not have to justify the reduction. It only offered a guaranteed sum of $181,000 (which is less than the total premium of $200,000). The insurance company is not taking any risk for the hefty "effect of deduction" of $55,000. All the investment risks are being shouldered by the elderly lady.

What is the amount of coverage provided by the life insurance policy? Almost nothing. The policy illustration stated that at the time of death, the amount that is paid out is the lower of 105% of the premium paid or the face amount. In the policyholder had died during the 10 year period, the policy would only pay out 5% more than the premium paid, It would not even pay out the actual yield  earned on the premium.

After paying the premium for two years, she wanted to reduce the annual premium. The insurance company told her that they would confiscated the excess premium that she had paid. For example, if she reduced the premium to $20,000 for the remaining three years, she would have to forego the excess $40,000 that was paid during the first two years.


The insurance company, which is an international life insurance company, reported profits of several billion dollars a year from their global operations, including Singapore. Guess where the profits come from? No prize for the right answer. Yes, it came from their policyholders, including this elderly lady .

When will the Monetary Authority of Singapore wake up and decide that this daylight robbery of the vulnerable citizens has to stop?


Anonymous said...

Mr Tan

Personally, I find that Spore has very weak enforcement in everything. In daily life, locals are afraid to speak up despite there is unfair situation in front of them. This culture is bad for us and law/rule breaker can escape easily and come back again.

I like, for example the roads were more in order 25 years ago when drivers followed the rules. Don't forget that we had traffic police enforcement around and it could be the reason. People become inconsiderate now, as a norm and there are more road bullies. It's bad for a country and sorry to say that, our government is the one to be blamed again. The group of police who escort the government officer around can be better deployed and more productive for the society.

Anonymous said...

Mr. Tan,

I fully agree with your views.

There are only 4 big life insurance Companies that is as large as you mentioned but two of them are considered local such as N and G.

The foreign ones are A and P.

"A" just reported 6 months operating profit after tax (OPAT) of US$1,630 million, up 12 per cent. 17 per cent increase in interim dividend.

What about P?


Anonymous said...

Despite so many feedback from buyers why there are still victims of these products? Is it because the insurance agents are good conmen that their victims are so dazed that they cannot refuse? only to wake up to realise they are being conned?

Anonymous said...

Ravi menon is too busy with correcting the president's name to care about this!

Anonymous said...

If the insurance company earned a return of 6%, the accumulated amount would be $320,000.
Will the insurance company took away $84,000 and gave a return of only $36,000 to the policyholder?

C.S. Leong said...

I am a pioneer and wonder why everyone is writing as anonymous, if you got the guts to write are you afraid that the Police or Internal Security Officers come knocking at your door in the middle of the night, please don't make me laught. I agree that 25 years ago people behave better this is because the Police then were more strict but if they are to be like that today you will call Singapore a Police State. More people are behaving badly now because society have become more affluent and people more arrogant. This also has got to do with family upbringing. Please do not blame everything on the government but yourself. As for police escort for Government Officials are you referring to all or just a few Minister ? Is Singapore the only country doing this ? As for Mr. Tan Kin Lian since you were in the insurance trade before you should be more knowleageable about insurance, so instead of just throwing stones you should help the poor lady take legal action against the company concerned if you feel she had been cheated. Lastly let me state that I have nothing to do with the government or PAP, I do not know any MPs or Minister least I be accused of being a government stooge. In fact I do not open my door to them when they do house visit.

Kin Lian Tan said...

Mr. Leong,

I find your remark that I am "throwing stones" quite uncalled for, especially as you do not know what is happening. I also do not like "smart alecks" to teach me what I should or should not do. Can you give your opinion without passing your judgment on me?

C.S. Leong said...
This comment has been removed by a blog administrator.
Anonymous said...

CS Leong,
why don't you start a blog and help to educate the public in your area of specialty instead of trolling here and give unsolicited remarks.
I guess you are a brave pioneer gone 'saltish'.This isn't the way to get respect.
What is wrong with Anonymity? Has your blood pressure gone up too?

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