I posted 1 week ago of something I want to gather regarding something I was curious about. The insurance policy that we were pestered to purchase from the sellers at MRT stations or from your trusted personal advisor, do they promised the high returns in the projection?
You can take a look at the result here at the bottom section of this post.
A policy that actually lost money?
What was surprising is that I never expected them to lose money. I thought its not possible. The participating fund or the underlying instrument should invest in bonds and when they matured they should be in the black, even at worse they lose out to inflation.
So the policy details are as such:
- Name: Great Eastern S-Lion
- Start Year: 1996
- End Year: 2011
- Duration: 15 Years
- Premium Paid: $739.60 annually
- End Value: $5155.92
- The returns you get: -11.65% CAGR
- Does the plan have any cash back or return: No cash back
You can see clearly the premium paying mode that its $739 per year. And the amount that they gotten back.
I probed whether there are cash back that they forgotten and the reader told me there shouldn’t be.
Even if I factored in a $300 per year cash back (very generous), it is still negative.
This actually means per year compounded, the money shrank 11.65% per year.
I have particular high confidence in the financial interpretation ability of this reader so this is really surprising.
Update 1st May 2014 1936: Wilfred Ling, a fee based professional financial planner have provided some interpretation of the cash benefit statement:
It appears to be an anticipated endowment with the option of leaving the yearly cash with GE earning an interest. The cash statement shown on the website is for the cash portion that was deposited back with GE. There should be a separate statement to show the maturity value with the bonuses declared and terminal bonuses.
Another reader who is in the industry also clarified.
This is only the cash benefit payable, i.e. a “survival benefit” payable every 3 years. You have to add on the maturity benefit as well
The problem is that the family do not remember receiving the matured sum. In this case, I have a strong hunch that this is likely a case of our misinterpretation. That is the problem when we don’t keep all the records.
Let me know if you have friends or family members who say they lost money on their insurance. I find that a lot of the time is, we are so mathematically challenged that we cannot tell that the returns are actually more than the appalling nature folks make them out to be.