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.