Liability and cash value

The MAS website contains the annual return submitted by insurance companies. Row 5 of Annex 1 K – Policy Liability of Participating Fund reported a figure as “sum of liability in respect of each policy of the participating fund”.

From the description, I presume that this total figure is obtained by adding up the individual figures applicable to each participating policy. I hope that this statement means what it says.

You can write to your insurance company to ask for:

1. the individual liability for each of your participating policies
2. the cash value for the same policy
3. the difference between these two figures

For example, if the liability for the policy is $30,000 and the cash value is $25,000, is it fair for the insurance company to keep $5,000 as additional profit, when they have already deducted their expenses, mortality charges and profit over the years, in arriving at the liability of $30,000. Are policyholders being cheated?

If a customer has $30,000 in the bank and the bank report it as the liabilty to the company, the bank is required to pay out the full amount to the customer on withdrawal. I believe that the same principle should apply to an insurance company.

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board(IASB). The following is a quotation from IFRS Framework:

> A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits/

Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.