Thursday, February 23, 2012

Reduction in maturity payout

A consumer bought a 21 year child education policy. On maturity of the policy, the payout was 26% short of the initial projection. The consumer asked my view, if this was reasonable. He was aware that the projected maturity proceeds was not guaranteed.

In my view, the reduction of 26% was too much, considering the circumstances over the past 21 years. The projected yield on the take-up of the policy was 5% and the final yield was 2.6%. 

He told me that he a similar experience with another policy for his elder son, taken with another insurance company. The company agreed to give him a higher payment following his complaint.

I am quite disturbed by the following practices:

a) a big reduction in the maturity payout
b) to adjust the payout after a complaint

I hope that the regulator is looking into this practice, and make sure that consumers are treated fairly. If they are going to cut the payout by a large amount, the insurance company should not be allowed to pay high salaries, commissions and expenses.

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