COMMENT POSTED IN MY BLOG (Edited by me)
I just picked up a brochure with big words Single Premium Policy, from a certain company in Ang Mo Kio Hub. I was shocked.
This company has taken advantage of the generally positive sentiment about simple single insurance products. It emphasized in its brochure, an unguaranteed payout of "4.1% p.a." - but if you read the fine print, you "may" get the 4.1% only if you put the money for a total of 30 years.
The brochure cites an example: if you put 65,700 when you are 35 years old (duh.. which 35 year old has so much spare cash), then after 10 years you get a guaranteed return of $76,900. I calculated that this is a miserable return of 1.5% p.a. (the company didnt do this calculation for you. They prefer to mislead and emphasize heavily the non guaranteed figure of 4.1%). I think that 1.5% guarantee is a bit too low for a 10 year simple SPP.
The brochure explained that "up to 4.1% return" can be obtained! But to get the 4.1%, the first 10 year end non guaranteed bonus must firstly be realised (which may not happen), AND secondly, you must let the policy roll on another 20 years, and you get the money back in drips and draps over 20 years. Do note: a lump sum payback is prohibited. You have to put most of the Single premium in that company for 30 years to get 4.1% pa. Who in his right mind would part with $65,700 for 30 years in any company.
I think that companies should not use non-guaranteed figures as a carrot to hook the customers. This is not fair to the consumer! When drawing up illustration, they should use realistic figures.
I have bought SPPs many times before, but the issuers don't normally advertise the non-guaranteed return. In my view, a simple 5 year SPP is acceptable, not the complicated products that give a bad name to the industry.
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