Low yield for policies with restructured bonuses

FIRST POSTED ON 10 MAY 2008

NTUC Income earned an investment yield of 10.7% on the participating fund in 2007. The average long term yield (computed over the past 10 years) is 7.8% per annum.

I have two policies that are affected by the restructuring of the bonues. I calculated the yields on these policies as follows.

1. GROWTH (LG SERIES)
This policy commenced in December 2003 with a single premium of $75,000. The estimated cash value at December 2008 (5 year duration) is $85,127, giving a policy yield of 2.5%. There is a gap of 5.3% compared to the fund yield of 7.8%.

If I keep the policy to the maturity date in December 2013, the projected maturity benefit is $112,795 giving a yield of 4.2%. This is still somewhat low, giving a gap of 3.6% compared to the fund yield.

This single premium policy has low expenses and low cost of insurance. I estimate that a fair reduction in yield should be 1%. The actual gap is somewhat high.

2. LIVING (LW SERIES)
This policy commenced in October 1996 with an annual premium of $2,567. The estimated cash value in October 2008 (12 year duration) is $28,383, giving a negative yield of -1.5%. There is a gap of 9.3% compared to the fund yield.

Although a Living policy has higher expenses and a bigger cost of insurance protection, the gap appears to be excessive.

Over the next 3 years, the cash value grows by only 1.8% per annum. This is low compared to the fund yield.

I have three other policies not affected by the restructuring of the bonus. The cash value for two policies increase by more than 4% per annum over the next 3 years and by 2.8% for the Living policy.

CONCLUSION
I believe that the policies affected by the bonus restructuring have not been given a fair rate of annual and special bonuses. This has resulted in a poor policy yield, compared to the long term average yield.