Tan Kin Lian's Blog: Long breakeven point for 30 year endowment

Friday, July 04, 2008

Long breakeven point for 30 year endowment

My friend is a retired manager of a life insurance company. He found that his daughter, a recent graduate, was sold a 30 year endowment policy. The benefit illustration showed that, for the first 27 years, the cash value was below the premiums paid.

During the last three years, the benefit illustration showed a large amount of non-guaranteed terminal bonus that boost the yield on the policy. The daughter was not aware that she would suffer a loss for 27 years and had not been properly advised by the agent. The agent only highlighted the high maturity value to convince the policyholder to enter into this "saving plan".

My friend said, "How can a saving plan have a breakeven point of 27 years? This is like cheating people". He wanted to ask the agent to refund all the premiums to the daughter. I advised him to get the daughter to lodge a complaint with MAS.

7 comments:

zhummmeng said...: This is what insurance agents have been doing all this time, partial disclosure, half truth half lies.
A friend showed me an NTUC quotation for revosave and asked my opinion.I told him not to touch this plan with a 10foot pole and so are the other cashback plans like prucash... A huge amount, maybe this the special bonus, is hidden at the end of the term, 5times the annual cashbacks plus a bonus.This was not disclosed to him instead the agent talked about the rubbish cashbacks and options to distract him.It is literally cheating the unwary with so called cash refunds and liquidity which is NOT liquidity. Ntuc need to send back ALL their agents for retraining to understand the word liquidity and other technical words otherwise they are cheating the consumers. Instead of consulting with the customers as financial consultants they have insulted the customers.
I bet it is the same with vivolife and the agents will use the return AFTER 30 YEARS and present it to customer as the policy 's return. I gathered it is less 3% even after 30 years.
Consumers must be discerning and seek second opinion from a trustworthy adviser before buying.
Whole life has been always sold as a saving plan and horrible saving plan too.Consumers must wake up and avoid participating whole life plans and endowment. If you think they are safe it is riskier than investing on your own. With the reshaping the risk has shot up.; July 04, 2008 2:37 PM
starlight said...: What about those whole life policies which are sold to children, citing the main reason as lower premium due to younger age?

starlight; July 04, 2008 2:59 PM
Raymond T said...: Sigh... so many insurance sharks around. NTUC was the last good one :(

Hope Mr Tan starts his new company soon! :); July 04, 2008 10:09 PM
zhummmeng said...: Wholelife premium has 2 components and they are mortality cost and surplus.Mortality cost goes up as you age. It doesn't matter when you take up the WL. The mortality cost is the same for a 65 yeas old man who just took up, as the 65 years old man who took up 50 years ago.
The surplus is the loose money that the insurer invests for you after less the mortality cost from the premium. This component keeps your policy alive or in force and the total accumulated must be in excess of the mortality.This forms your cash value.Why WL is a favorite with insurers becuase of this component. It ensures the insurers get paid and paid as revenue to the company for whole life.. Imagine a perpetual stream of income for the insurers as long as you keep your WL plan.
You will be wondering if the mortality cost goes up and up and by the time when you are 65 years the cost must be huge but the premium you have been paying since young can hardly be enough to pay, right?
Example : when you bought WL at 10years old and assume the annual premium was and has been $800 pa and when you hit 65 years old your mortality cost is $4500 but you are paying $800 premium where got enough to pay...Eh... Insurers are not idiots and now you know why they love you. They take from your cash value to pay the difference and that explains why the policy return starts to dip. The 3% return you have been enjoying before this is now not accumulating fast enough to counter the deduction of the huge mortality cost , it is now negative return for your policy. Your cash value is shrinking before your eyes and you have no idea why it is happening because the insurance agent is also clueless or pretends to be clueless or he didn't want to disclose to you when he or she sold you the policy.Anyway, salesmen don't disclose the truth. Only lies sell.
So Mr.Roger, now you have an idea of how premium is charged. When an insured is young the premium is low because the insured has long, very long time horizon to accumulate more than enough cash value for the future for the insurer to deduct the increased mortality cost. It appears the insured is paying the same cost(premium) but the lack of transparency hides the truth from the insured that he or she is actually paying far bigger 'premium' than he or she thinks.
This is the conspiracy of the company and the agents. Bundled WL products have you guys bundled for life. Buy term and invest the rest frees you and you are in control.; July 05, 2008 12:35 AM
zhummmeng said...: Insurance salesmen or women or consultants or whatever name they go by, when they push you whole life or endowment products or anticipated endowment disguised , be wary of them.They don't have your interest at heart and their sales pitch tells and reveals the liar, greedy, wicked , and the cheat inside. They will tell you only half the truth at best and the rest is lies, misrepresentation and all those bullshits that you love to hear.
Please tell me it is not true that insurance salesmen only tell what you like to hear...How can you ever make good decision on half information which it is largely untruths? That is why I said selling is about how convincing are your lies.That is why today people are saddled with rubbish policies which majority have no idea of what they bought..Hey, this is some important financial matter and how can you buy these products from some salesmen or women or from salesmen touting at the 5footway, roadside, malls or mrt?
Remember, if you are not sure consult a second reliable opinion.; July 05, 2008 12:44 PM
Unknown said...: When I bought WL plan years back, i thought it was a good deal for insuring life especially with the 'attractiveness' of bonuses accumulated. It was like an investment with no end in sight, except by voluntary or involuntary termination. But then, there was no much choices in the market, so it was deemed to be a good investment. This time around, I would advise those who are thinking of WL, to think of other alternatives in view of returns and variety of choices.; July 06, 2008 3:21 PM
Khiat Han Hwee Adrian said...: I think we cannot guage this case by seeing such email alone. We have to read it with a pinch of salt.

Consumers like to exagerate what they see. It could be a anticipated policy which they choose to withdraw some money? Or there are some features like extra insurance coverage that reduce the returns, etc.

I'd never seen a plan that breakeven after 27 years before. I think this case need to be looked into more carefully and not jump to conclusion.

I also think its also not fair to always pinpoint NTUC Income as a scrap-goat for all insurance malpractices.; July 08, 2008 2:34 PM