• All blog entries
    • Calculators
    • Case studies
    • Cost of living
    • CPF Are You Ready?
    • CPF Matters
    • Credit Management
    • e-Learning
    • Estate Planning
    • Events
    • Financial advisers
    • High Networth
    • Insurance
    • Investments
    • Letters to the Press
    • Magazines
    • Others
    • Retirement Planning
    • Scams
    • Surveys
    • Tragic Stories
    • Unethical sales process
    • Videos
  • Legal
  • Testimonies
    • Individual testimonies
    • Gallery
  • My Account
Hi, looking for a fee-based financial planner in Singapore? Read this article now!
  • Home
  • About
    • About Wilfred Ling
    • Why do you run your own professional financial planning practice?
  • FAQs
    • FAQs on Wilfred Ling’s Financial Services
    • FAQs on Financial Planning
    • FAQs on Investments
    • FAQs on Insurance
    • FAQs on Estate Planning
  • Services
    • Overview
    • Create a financially secure plan for your young family (package details)
    • Retirement Planning
    • Investment Portfolio Management
    • Insurance Planning
  • Fees
  • Cool Tools
  • Contact
  • Subscribe
You are here: Home / Insurance / Bonus Cut for a par product

Bonus Cut for a par product

29, April 2009 by Wilfred Ling Leave a Comment

Last Updated on 28, October 2016

Participating insurance policies (e.g. endowment and whole life) declare annual bonuses. Once declared, it is guaranteed. Many (but not all)  par products have terminal bonus as well. Terminal bonuses are not guaranteed and is expressed as a percentage of already declared bonus. Terminal bonus will only be declared on maturity or upon claim or surrender.

In the past, one insurer reduced the terminal bonus to zero for a particularly bad year. The outcry from the policyholders were terrible. But there is little policyholders can do - afterall what is not guaranteed is not guaranteed. Recently a famous insurer cut its annual bonus for policies incepted after 1993 and increase its terminal bonus so that the "Total bonus" remains the same. Actually it is misleading for the insurer to say that the "Total Bonus" remains the same afterall the actual terminal bonus being non-guaranteed is an unknown future value. It is more approriate to say that the "projected total bonus" remains the same.

The cut in annual bonus for this insurer is particularly disturbing. This is because the Year 2007 is a good year. Granted that it should not distribute all its profits to its policyholders outright (because it need to keep some profit for bad years), but at least it should not cut bonus. What is the lesson here?

  1. Do not put all eggs into one basket. It is quite alarming to see people buying all their insurance policies from one insurer. Spread the "risk" (whatever what it is) across multiple insurers
  2. When buying par product for the purpose of savings (i.e. endowment), look for one that provides the highest guaranteed cash value. Currently the champion at this point of writing is TM Asia Life.
  3. When buying par product for coverage (i.e. whole life), spread the risk across a few insurers to reduce the risk.
  4. There is no need to put all money into par products for savings. Can also diversify some into unit trusts and RSP on it. The endowment can be used as the "bond fund" while the RSP into Unit Trusts be treated like the "equity" portion.
  5. To provide very high temporary coverage, a term product is recommended. However, again do not put the entire sum assured into one insurer. For example, if buying a S$1m coverage, avoid putting all S$1m into one insurer. Perhaps spread the risk by putting S$250k into 4 insurers.
  6. Look for an IFA to help implement the above. Note that not all FA are IFA. Some FA companies are ownned by insurance companies. Thus, they are not "I"ndependent.

Like this article? Subscribe to my newsletter below for more.

Get regular Tips on Financial Planning. Free subscription for 3 years. Covers all aspect of financial planning such as 'How much salary you should have?', 'How to avoid insurance that is not suitable?", 'What are the retirement planning methods?", etc

Share this:

  • Tweet
  • Print

Related

Filed Under: Insurance

What do you think? Leave a comment. Cancel reply


WILFRED LING, CFA

WANT TO GET REGULAR TIPS ON FINANCIAL PLANNING?

JOIN with thousands of other subscribers in getting tips on all aspect of financial planning such as "What is the minimum salary required?", "How avoid insurance that is not suitable", etc.


WILFRED LING IN THE NEWS

Click HERE to find out more.


THE KIND OF CLIENTS I AM LOOKING FOR

NEW TO US?

Learn how you can fully benefit from this massive website: HERE

For Registered Users Only (free)

  • Webinar on 7 Real Stories To Achieve Your Financial Freedom 6/6/2023
  • Webinar on Major change in cancer treatments in your integrated shield plans 3/9/2022
  • How and what to invest now? (Webinar) 28/7/2022
  • How to identify high performing unit trusts in 3 steps (Webinar) 3/9/2021
  • Financial Planning – Christian Perspective Part 2 (Webinar) 14/8/2021

View All

For Clients Only

  • Video Message to Clients 30/12/2021
  • Exclusive client-only Investment Update Webinar by Wilfred 26/11/2021
  • JPMorgan Guide to Market Q2 2020 15/4/2020
  • JPMorgan Perspective Q2 2020 15/4/2020
  • JPMorgan Guide to Market Q1 2020 5/2/2020

View All

Recent comments

  • Dipokdas on Travel Without Financial Worries: 3 Tips to Achieve Financial Independence (Sydney)
  • Nay Nay on Is PruSelect Vantage plan a good or bad product?
  • Basil on Question on Manulife InvestReady
  • mah weng kong on Is PruSelect Vantage plan a good or bad product?
  • Rafi on Wilfred Ling’s Story, the beginning
  • ECE7 on Wilfred Ling’s Story, the beginning

To be notified of new blog post, like this facebook page

To be notified of new blog post, like this facebook page

Read articles based on different categories

Chartered Financial Analyst

CFA

Chartered Financial Consultant

ChFC

Featured Blogger

IM$avvy

© Copyright 2006-2025 Wilfred Ling

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore

hollow-nasty
hollow-nasty
hollow-nasty
hollow-nasty