Poor yield on Vivo-life

A consumer showed me the benefit illustration for a Vivo-life. He found that the deduction at the end of 25 years appeared to meet my benchmark of 20%. The deduction was 20% based on a gross yield of 3.75% and 32% at the gross yield of 5.25%.

I was surprised at the difference between the two deduction figures of 20% and 32%. The difference is too wide and does not make sense. It suggest to me that there is something wrong with the system of allocation of bonus to produce such wide results. I asked him to get the insurance company to confirm the figures. I am quite worried that as insurance companies introduce complicated and exotic tables of bonus rates, they may end up with mistakes that are quite unfair to certain groups of policyholders. I hope that MAS is paying attention to this feedback.

For the particular policy, the premium was paid for only 5 years. It is not appropriate to use my benchmark which is based on premiums being paid for 25 years. For the Vivo-policy, the calculation should be based on the premium period of 5 years. here are the figures:

A Prem	Years	CV	Gross yld	Net Yld	Deduction
11936	5	53349	3.75%	-5.61%	9.36%
11936	5	53349	5.25%	-5.61%	10.86%

I was shocked that the cash value at the end of the premium payment period is lower than the total premiums. This gives a negative yield. The total deduction is excessive, as shown by the above table.

It does not make sense for a consumer to be paying $59,680 in premium for 5 years to get a cash value of only $53,349. The consumer loses $6,331 for 5 years. The cost of the insurance cover for 5 years should be probably be $500 (in total) and not $6,300. It is such a bad deal for the consumer!

Tan Kin Lian