Question: Wilfred, I sold a 5 years single premium endowment from a reputable insurer in 2009 to my clients. Recently it just matured and I was shocked to discover that my clients only receive $102,291.77 for every $100,000 single premium. I was told single premium is a safe product but the returns are horrible! Can I complain on behalf of my clients and if yes to whom? - From a financial adviser
Wilfred: After reviewing the benefit illustration, it is indeed a single premium endowment for 5 years. The maturity values given were:
Non-guaranteed ( @ 2.7%): $107,850 (effective return is 1.53%)
Non-guaranteed ( @ 4.2%): $115,950 (effective return is 3.00%)
Since the actual maturity value is above the guaranteed amount, strictly speaking there is nothing wrong with the product and that you have no basis to complain.
Still, the realized return is only 0.45%pa. The 12 months fixed deposit rate from 2009 to 2014 were around 0.3% to 0.6%pa which I copy and paste from MAS website below.
So, what can we learn from this incident?
- It does not mean large and branded companies are good. In fact, no insurer can claim to have all its champion products.
- “No risk” does not mean no loss. After net of inflation, you can still make a lost. Even if the insurer meet its highest projection at 4.2% which is actually effective 3% nominal return, the real return is still negative because of inflation.
- It is better to diversify the clients' investment portfolio. For insurance products, diversified across different insurers because you can never know which one will give a raw deal until it is too late.
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