LIFE insurers are tweaking the examples they show to consumers interested in buying certain life insurance policies.
From July 1, illustrations used to show possible annual rates of return paid as a variable bonus later on will be lowered a little.
The Life Insurance Association (LIA) said yesterday the move reflected the ongoing low interest rate environment here.
Consumers buying policies such as endowment and whole life policies, which pay a variable bonus out of a pool of investment funds, are shown two examples.
Premiums paid by policyholders for these participating or “par” plans go into a common pool called the “par” fund. The funds are invested in a variety of assets, and bonuses will be paid out from surpluses.
At present, the two rates used to illustrate possible – but not guaranteed – returns are 5.25 per cent and 3.75 per cent a year, which have been shown to insurance buyers since 2002.
But from July 1, the rates used as the basis for examples will be 4.75 per cent and 3.25 per cent.
Independent financial advisory firms back the change as it gives consumers a more realistic idea of how their funds may perform.
SingCapital chief executive Alfred Chia said as the economy matures, with a more challenging investment climate, the lower rates mean greater transparency.
“So instead of consumers saying: ‘When I receive the maturity, I don’t get this kind of return’, it gives consumers a better view if the market continues to be challenging. There is no overprojection,” he said.
The LIA emphasised that the two rates are purely for illustrative purposes, and do not represent upper and lower limits of a fund’s investment performance.
Mr Alex Lee, chief actuary of Tokio Marine Life Insurance Singapore, said the firm would continue to seek strong returns.
“Our policyholders will not be short-changed by the new cap rate as it is still our intention to pay the policy benefits if we continue to achieve our expected investment return rates.”
Eternal Financial Advisory’s chief executive Viviena Chin said the move will not greatly affect consumers.
She said the guaranteed component of products such as endowment policies would always beat interest paid by banks.
All policies that carry cash have a guaranteed and non-guaranteed benefit. When the policy matures or a consumer cashes out, he is certain to get the guaranteed benefit, while the non- guaranteed return is a variable bonus.
Mr Chia noted: “The main function of policies is to provide protection, and that should come in as a bigger consideration. Cash value is secondary.”
Ms Chin said: “In five to 10 years, nobody can guarantee the investment returns as it still depends on the performance of the fund. These are just two hypothetical projection rates.”