Avoid participating policies

Dear Mr. Tan,
I have several policies with X. I received a letter showing a cut in the bonus rates, to be compensated by higher rates of special bonus. But the rates of the special bonus for my different policies are quite different. How do I know if I am getting a fair rate of bonus?

REPLY
I am also quite confused with the different rates of bonus on my policies. More importantly, I find that my participating polices have still not reached the breakeven point after being in force for more than 10 years. I suspect that they have not distributed a fair rate of bonus, in spite of the attractive yield earned on the fund over the past ten years. I have raised this matter with X, but they keep giving me unsatisfactory replies.

My advice to the public is: Never invest in any participating life policy, including whole life policies where the premiums is paid for10 or 20 years. Here are the reasons:

1. The distribution cost is high and can take away up to 2 years of your savings. That is a lot of money to be given away.

2. You will not get a fair rate of return, as the insurance company will pay bonus that are far less than what the investments actually earned

Another actuary, who knows what is going on, told me that he avoids participating policies for the same reason. He will only buy Term insurance. He prefers to invest his savings in unit trusts, as the charges are lower and are transparent.