Tuesday, June 28, 2016

Removal of jump in bonus

When the policy was bought many years ago, the projection showed a low rate of bonus for many years. On the 20th, 25th and 30th anniversary, the bonus had a "big jump". This was supposed to be a terminal bonus that occurs only on these years.

Many years later, the policyholder found that the "big jump" had disappeared. The surrender value was much less than initially projected.

He requested for a Post Sale Benefit Illustration. It showed that the "big jump" on these special years had disappeared.

The policyholder asked for my views.

I had raised this issue with MAS many years ago. I said that it is bad for a policy to be designed in this way. The insurance company pays a low surrender value for most years, if the policyholder has to surrender the policy.

The MAS official said that that this was the design of the policy. The policyholder had the choice of waiting for the special anniversary to enjoy the higher value.

I do not like the MAS position, but I had to accept it. If the policy is designed in this manner, it is wrong for the insurance company to withdraw the special anniversary bonus arbitrarily.

If the insurance company has to reduce the bonus due to poor investment return, they have to implement the cut fairly across the board. All policyholders have to bear their fair share of the cut. It is wrong for the insurance company to take away the special anniversary bonus, as those affected had to suffer a larger cut compared to the other policyholders.

MAS requires the board of directors to ensure that the policyholders are treated fairly when they have to review the bonus rates. It will be difficult for the board to prove that they have been fair to the affected policyholders when they take away the special anniversary bonus.

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