Tan Kin Lian's Blog: Poor cash value

Monday, July 21, 2008

Poor cash value

I find the practice of life insurance companies in giving low cash values to be most unfair to policyholders.

Here is an example. The policyholder took an endowment policy 15 years ago, and paid an annual premium of $5,925. After 15 years, the cash value of $86,299 represents a yield of 0% on the premiums that have been invested.

The insurance company projected a maturity value of $166,622. This would give a yield of about 5% per annum for 18 years.

If the insurance company had indeed earned a net yield of 5% for the past 15 years, the "asset share" should have been $127,000. The payout of $86,299 represents a penalty of $40,000 from the "asset share".

How can the insurance company justify this large penalty on a customer who has entrusted the CPF savings for 15 years?

The policyholder, who has now retired, is forced to find the premium to pay for the next three years, to avoid this huge penalty.

I advise the policyholder to lodge a complaint with the Monetary Authority of Singaore on the poor cash value that is being offered by this life insurance company.

I advice the public to avoid all life insurance products that offer low cash value and project a large terminal bonus on maturity. If you are not able to pay the premium to the maturity date, a large part of your savings will be confiscated. Even if you continue to the maturity date, you can never be sure that the terminal bonus will be paid.

I hope that the Monetary Authority of Singapore will take action to enforce payment of cash value that is close to the "asset share" - a practie which has been adopted in Malaysia. Do not let the ordinary people be deprived of a fair return on their savings.

3 comments:

zhummmeng said...: That is what ntuc revosave projection shows. A large chunk made up of refunds( 5 times usual annual refunds) and bonus at the end of maturity. If you should for some reasons unable to complete the term or go on automatic premium loan you forfeit them.
I think the whole idea is to FORCE you to keep and if you have stamina you make it for a miserable total return of less than 2%. If you can't, the company makes more money and you lose. Either way the customers are losers and suckers.; July 21, 2008 12:04 PM
siewkhim said...: The practice adopted in Malaysia were for policies filed to Bank Negara after 1st Jan 2007. For policies filed before that policyholders will not enjoy policy values based on asset share but still the shity min Act basis.

It is hard to fight for this case since the MAS will say the insurer has already paid the minimum allowed.

MAS has to required all policies filed after a certain date in the near future to be on asset share basis.; July 22, 2008 12:14 AM
zhummmeng said...: If 20% considered a runaway inflation? What about a 10 million percent? What do you call this? Zimbabwe is facing it and to counter , it has issued a 100 billion dollar note. You will be a billionaire by changing one of your dollars in this place.
What about insurance policies in this place? wholelife or endowment?
I think the insurers stopped insuring long time ago. Existing ones will be paid with a billion dollar notes? Restructuring or reshaping the bonus just won't work. Nothing works here.; July 22, 2008 9:42 AM