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.
This is DAYLIGHT ROBBERY.
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?