Hi Mr. Tan,
You should quote to the press about Z cutting of terminal bonus to 0% somewhere in the early 2000. Sometimes the press is not totally transparent especially when advertising revenue is at stake. Even one of the journalist can be quoted on Z advertisement for a product.
I am surprised that the newspapers did not use Zs cancelling of terminal of bonus as a real example of what can happen and had happened to warn the public about the change of bonus structure.
I was an agent with Z then, I felt that that was downright disgusting, unethical and leaning towards abusive misrepresentation and fraud. I was surprised that MAS actually allowed Z to do that.
I hope you can use this experience to warn policyholder of how vunerable it can be especially when there is no guarantee since the press is reluctant to bring it for fear of losing advertising revenue. I apologise that I cannot identify myself as I still have my friends in Z.
Wishing you the best and thank you for the effort in warning about the repercussions of the change of bonus structure.
Inspire88
Wednesday, May 28, 2008
My approach towards life insurance
My savings in life insurance policies were made during the past 30 years. I keep these policies, if they continue to give a reasonable yield. I shall be discontinuing the policies that earn less than 3% p.a.
I will not be putting any new investments in a life insurance policy, as the return is poor. I do not like policies that have high terminal bonus, as a large part of the future yield is uncertain, non-transparent and beyond my control.
I am now 60 years old and my children have grown up. I do not need more any life insurance protection. I have a private Shield plan B. This is sufficient for my needs.
I will not be putting any new investments in a life insurance policy, as the return is poor. I do not like policies that have high terminal bonus, as a large part of the future yield is uncertain, non-transparent and beyond my control.
I am now 60 years old and my children have grown up. I do not need more any life insurance protection. I have a private Shield plan B. This is sufficient for my needs.
Poor return on maturity
Dear Mr. Tan,
May I ask if the non-guaranteed reversionary bonuses are determined by individual insurance company? Are these bonuses declarations subject to MAS regulatory control or are they depend on the “mood” of the insurance company?
I have similar situations with company Y. To our disappointment, the payouts of non guaranteed reversionary bonus for the matured policies (belonging to my wife and me) are grossly reduced to a mere 0.12% of the sum assured, instead of the 0.45% as per point of sales illustration. More unbelieving was the fact that the company declared their overall total assets investment return for 2007 was 5.7% p.a. with fixed income return of 4.9% p.a. and a strong equity portfolio investment return of 8.6%.
We feel that we are not given the fair share of the illustrated payouts of the reversionary bonus during last few years, with the strong performance of the economy and the insurance company in particular. Now, we learnt that the illustrated numbers at the point of sales are no more than a set of empty promised number.
I see no other alternatives, besides writing to the insurance company for clarifications and going to FiDREC to seek redress. Do want to learn from you on how can the interest of the policyholders be protected from the giant insurance company from either “misrepresenting” or “under declaring” their payouts to earn more from us, the commoners.
REPLY
You should write to MAS and ask them to find out the reason from company Y on your behalf. It is the duty of MAS to ensure that the insurance companies treat their policyholders fairly in respect of the declared bonuses for these type of approved products.
MAS now requires the bonus distribution to be decided by the board of directors, on the recommendation of the appointed actuary, and that the process be governed by an "internal governance policy" as set out in MAS 320.
In my view, this does not provide sufficient protection for the interest of consumers. There is a conflict of interest within the board, that represents the shareholders.
I hope that MAS will change the approach. It is better to have an independent actuary, appointed by MAS, to look at the bonus distribution and make sure that they have been declared fairly to consumers.
In the absence of adequate safeguards, it is better for the consumer to avoid investing in life insurance policies. It is better to invest in a low cost investment fund, due to its transparency. The investor will be able to keep most of the investment gains, less the transparent charges.
Tell your family and friends about your bad experience with this insurance company. It will happen, again and again. Tell them to avoid high cost life insurance products, which provides poor value. Most of your investment gains are taken away as expenses and profit, leaving you with a poor return.
May I ask if the non-guaranteed reversionary bonuses are determined by individual insurance company? Are these bonuses declarations subject to MAS regulatory control or are they depend on the “mood” of the insurance company?
I have similar situations with company Y. To our disappointment, the payouts of non guaranteed reversionary bonus for the matured policies (belonging to my wife and me) are grossly reduced to a mere 0.12% of the sum assured, instead of the 0.45% as per point of sales illustration. More unbelieving was the fact that the company declared their overall total assets investment return for 2007 was 5.7% p.a. with fixed income return of 4.9% p.a. and a strong equity portfolio investment return of 8.6%.
We feel that we are not given the fair share of the illustrated payouts of the reversionary bonus during last few years, with the strong performance of the economy and the insurance company in particular. Now, we learnt that the illustrated numbers at the point of sales are no more than a set of empty promised number.
I see no other alternatives, besides writing to the insurance company for clarifications and going to FiDREC to seek redress. Do want to learn from you on how can the interest of the policyholders be protected from the giant insurance company from either “misrepresenting” or “under declaring” their payouts to earn more from us, the commoners.
REPLY
You should write to MAS and ask them to find out the reason from company Y on your behalf. It is the duty of MAS to ensure that the insurance companies treat their policyholders fairly in respect of the declared bonuses for these type of approved products.
MAS now requires the bonus distribution to be decided by the board of directors, on the recommendation of the appointed actuary, and that the process be governed by an "internal governance policy" as set out in MAS 320.
In my view, this does not provide sufficient protection for the interest of consumers. There is a conflict of interest within the board, that represents the shareholders.
I hope that MAS will change the approach. It is better to have an independent actuary, appointed by MAS, to look at the bonus distribution and make sure that they have been declared fairly to consumers.
In the absence of adequate safeguards, it is better for the consumer to avoid investing in life insurance policies. It is better to invest in a low cost investment fund, due to its transparency. The investor will be able to keep most of the investment gains, less the transparent charges.
Tell your family and friends about your bad experience with this insurance company. It will happen, again and again. Tell them to avoid high cost life insurance products, which provides poor value. Most of your investment gains are taken away as expenses and profit, leaving you with a poor return.
A better bonus philosophy
EXTRACTS FROM STATEMENT BY
NICK RHODES, APPOINTED ACTUARY OF INCOME, 2002-2007
Income, as a Cooperative, distributes less to shareholders .... so a variable and high annual bonus can be paid, to the benefit of policyholders.
Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300.
As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.
Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".
NICK RHODES, APPOINTED ACTUARY OF INCOME, 2002-2007
Income, as a Cooperative, distributes less to shareholders .... so a variable and high annual bonus can be paid, to the benefit of policyholders.
Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300.
As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.
Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".
An amicable solution
I discussed with NTUC Income's management to seek an amicable solution that will be in the best interest of policyholders and the reputation of NTUC Income.
Tan Suee Chieh asked me not to appear to "take credit" for getting Income to make some changes. He wanted both parties to appear to "win-win". I agreed.
I am disappointed that he made a statement to the media that I changed my tone after understanding the issues behind the restructuring of the bonus. This is not true. I have told Suee Chieh a few times that I am against the restructuring of the bonus,
Tan Suee Chieh asked me not to appear to "take credit" for getting Income to make some changes. He wanted both parties to appear to "win-win". I agreed.
I am disappointed that he made a statement to the media that I changed my tone after understanding the issues behind the restructuring of the bonus. This is not true. I have told Suee Chieh a few times that I am against the restructuring of the bonus,
Allow policyholders to choose
Some policyholders have asked me to insist that they be given the right to choose between the new and old bonus structure. I hope that this is possible and believe that it is the best option.
If NTUC Income's managment is convinced that the new bonus structure is likely to give a better return to the policyholders, they should be able to convince most policyholders to move to the new structure.
If NTUC Income's managment is convinced that the new bonus structure is likely to give a better return to the policyholders, they should be able to convince most policyholders to move to the new structure.
View from Appointed Actuary (2002-2007)
Dear Kin Lian
A high terminal bonus (which some companies suddenly reduced to zero when STI was low in 2002/3) is used by most companies to pass much of the investment risk to policyholders, without giving any significant additional return. If a policyholder wants an investment linked product, he can buy one - a policyholder who buys With Profit wants and deserves a more predictable ultimate claim value.
Stock Companies (i.e. all companies offering With Profits life insurance policies in Singapore, other than Income) are constrained in that their shareholders demand a stable dividend. The amount that can be transferred to Shareholders is limited to 1/9th of the cost of bonus - hence the annual bonus has to be sustainable with a very high degree of confidence, even in extreme financial conditions - and hence has to be low.
Income, as a Cooperative, distributes less to shareholders and is not constrained in this way - the transfer from Par Fund to Shareholders Fund has been no more than 2% of the cost of bonus - so a variable and high annual bonus can be paid, to the benefit of policyholders.
Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300. As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.
Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".
Nicholas Rhodes,
Appointed Actuary of Income 2002-2007.
A high terminal bonus (which some companies suddenly reduced to zero when STI was low in 2002/3) is used by most companies to pass much of the investment risk to policyholders, without giving any significant additional return. If a policyholder wants an investment linked product, he can buy one - a policyholder who buys With Profit wants and deserves a more predictable ultimate claim value.
Stock Companies (i.e. all companies offering With Profits life insurance policies in Singapore, other than Income) are constrained in that their shareholders demand a stable dividend. The amount that can be transferred to Shareholders is limited to 1/9th of the cost of bonus - hence the annual bonus has to be sustainable with a very high degree of confidence, even in extreme financial conditions - and hence has to be low.
Income, as a Cooperative, distributes less to shareholders and is not constrained in this way - the transfer from Par Fund to Shareholders Fund has been no more than 2% of the cost of bonus - so a variable and high annual bonus can be paid, to the benefit of policyholders.
Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300. As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.
Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".
Nicholas Rhodes,
Appointed Actuary of Income 2002-2007.
Life Annuity Vs CPF-Life
Dear Mr. Tan,
I am 58 and retired. Three years ago, I used my minimum sum to bought a Life Annuity.
With the recently announced CPF-Life, higher MSRA interest, D-Bonus and V-Bonus, is it better for me to:
(a) Terminate the Life Annuity and transfer the money back to CPF RA (to earn the SMRA interest rate and various bonus) or
(b) Retain the Life Annuity and instruct the insurer to postpone the pay-out age from 62 to 65 (to qualify for the V bonus)?
REPLY
The CPF pays an attractive rate of interest on the retirement account, i.e. 4% plus 1% bonus. It also pays the bonus for deferring the payment.
I know of an annuitant who decided to cancel the annuity and transfer the savings back to CPF. He received a good cash value and found the new arrangement to be finacially better.
Perhaps, you should study both options and make the decision, based on the actual figures. You can ask for the actual figures and carry out a cash flow projection over the next 5 or 10 years, to make a better decision.
I am 58 and retired. Three years ago, I used my minimum sum to bought a Life Annuity.
With the recently announced CPF-Life, higher MSRA interest, D-Bonus and V-Bonus, is it better for me to:
(a) Terminate the Life Annuity and transfer the money back to CPF RA (to earn the SMRA interest rate and various bonus) or
(b) Retain the Life Annuity and instruct the insurer to postpone the pay-out age from 62 to 65 (to qualify for the V bonus)?
REPLY
The CPF pays an attractive rate of interest on the retirement account, i.e. 4% plus 1% bonus. It also pays the bonus for deferring the payment.
I know of an annuitant who decided to cancel the annuity and transfer the savings back to CPF. He received a good cash value and found the new arrangement to be finacially better.
Perhaps, you should study both options and make the decision, based on the actual figures. You can ask for the actual figures and carry out a cash flow projection over the next 5 or 10 years, to make a better decision.
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