Projected bonus on participating policies

The Sunday Times printed an lengthy article to explain the projected bonus on participating policies.

I received the following question from the public:

- how can I find out the actual investment return earned by the various life insurance companies?

- does a company with a higher investment return give higher bonus to their policyholders?

I gave this reply:

- generally, a company that earns a higher investment return should be able to give a higher bonus, and a better return

- but it also depends on their expense ratio and the amount of the profits taken by their shareholders.

It is better to ask the company to tell you about the actual return earned on a policy that was taken 10, 15 and 20 years ago and matured this year.

You can compute the actual return on the policy, and compare it with the return on similar policies taken with other companies. This comparison is more straightforward.

-----------------------------------------------

Here is an example.

A customer bought a endowment policy 20 years ago, and paid a monthly premium of $100. The policy matured recently.

If the participating fund earned an average of 6% per annum, and paid ALL of the gain to the customer, the customer would have received a maturity beenfit of $47,000.

Most life funds would probably have given a return of about $37,000 (ie about 4% per annum). The difference of $10,000 is used to pay the agent commission, expenses and profit to the shareholders.

An insurance company operating at low cost may be able to give about $42,000 (ie about 5% per annum). They pay lower commission and expenses and give less to shareholders. Compared to similar "high cost" products, they can give agout 15% more on maturity.