Reduction in Annual Bonus

1. NTUC Income has reduced the annual bonus on its life insurance policies and compensated it by increasing the special bonus. Is this change good for policyholders?

It is better for a policyholder to have a higher rate of annual bonus, as it is vested immediately each year. The special bonus is not guaranteed and may be withdrawn at a future date, before it is paid.

In the past, there were many cases of insurance companies that used high projections to sell their policies and have reduced the special bonuses before they are due to be paid. This has caused great losses to the hapless policyholders who are denied the projected payouts, after waiting for so long.

2. Does NTUC Income have the right to change the bonus structure in this manner?

At the time of issue of the policy, NTUC Income gave a projection showing how the bonuses will be distributed in the future years. Although these bonuses are not guaranteed, there is an expectation that the future bonuses will be distributed fairly. If the investment yield is high, the bonus rates should be increased. If the yield is low, the bonus rates may be reduced.

This has become a "reasonable expectation" of the policyholders. The Monetary Authority of Singapore required life insurance companies to ensure that the "reasonable expectation" of the policyholders is respected.

NTUC Income will be acting against the "reasonable expectation" by reducing the annual bonus in a year when the investment yield is exceptionally high (i.e. above 10%). The increase in special bonus payable in the future does not give adequate compensation to the policyholders, as it is not guaranteed and is payable only after a long time in the future.

Some policyholders have to terminate the policies earlier, for various reasons. They will get a lower cash value due to the lower annual bonuses. This penalty is unfair to these policyholders.

3. Should I cancel my policies with NTUC Income, as their annual bonuses and cash values will be poor in the future?

Do not cancel your policies, as you will suffer a financial loss. As NTUC Income has unilateraly changed the bonus distribution unfairly, you can take a strong stand against this change. See below.

4. What can a policyholder do?

If you feel that you have been severely disadvantage by the reduction in annual bonus, you can send a strong letter of protest to the following:

a) chairman of the board of directors of NTUC Income
b) the Monetary Authority of Singapore
c) your Member of Parliament

If sufficient policyholders voice their unhappiness, these parties will have to take action to correct the injustice.

There is also the possibility for policyholders to get together to take collective legal action. This should be reserved as the last step.

5. How many policyholders are affected by this change?

NTUC Income has said that 310,000 policyholders are affected.

6. Does this change affect all policyholders of NTUC Income?

It affects the policyholders who took the policies in recent years, and not the policyholders who took the policies earlier. This is another source of inequity, as different groups of policyholders are treated differently on this matter.