Tuesday, April 11, 2017

Big cut in bonuses

A mother bought a life insurance policy for her 19 year old son. After 25 years, the policyholder (son) saw that the insurance company had cut the payout significantly.

More details are available here:

1 comment:

Unknown said...

In the old days, those who had long-term (>15yrs) endowments or wholelife policy that matured or surrendered before 1997 (Asian Financial Crisis) still managed to get relatively good returns of 4% to 5% p.a. Insurance companies then could sustain such payouts because of the high interest rates then, especially during the 1980s, when even investment-grade bond yields were in the high single-digits.

After Asian Financial Crisis in 1997, everything fell apart particularly for fixed income / bonds which is the main asset for insurance companies' participating fund --- which they use to grow your endowments and wholelife cash values & annual bonus declarations. Interest rates for investment grade bonds fell below 4%. After minusing away the expenses, salaries, commissions, overseas trips, staff bonuses etc what is left for policyholders is only 2.5% or less.

Unfortunately MAS still allows insurance companies to market their stuff using investment returns of 3.25% and 4.75%. It should be no more than 1.5% and 3.0% to give a more realistic picture to potential buyers.

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