Life Insurers Cheat

Personal insurance policies are a necessity in the unlikely event of misfortune, which can be disastrous for the insured and their loved ones. It is expensive to get sick or be involved in accidents that have life- altering effects. 

Consumers who wish to purchase insurance policies need to be presented with a benefit illustration plan before purchasing and signing the insurance contract because such policies involve long-term commitment and consumers need to be satisfied with the benefits of the illustration plan. The plan will have the coverage sums presented, in which some insured sums are financially guaranteed while some benefits are not since they depend on portfolio performance. 

I have three insurance policies, whereby there are guaranteed financial benefits and non-guaranteed financial bonus as I monitor the performance every year against the benefit illustration plan. One policy lived up to expectations as per the benefit illustration plan with the exception of last year. Upon querying, the insurance company explained that for that year, the portfolio did not perform up to expectations but still made positive returns. 

I was satisfied with the information provided for the one-off under-performance against the benefit illustration plan for the year 2015 as the company was transparent and did not hide behind the clause that the dividend paid out is not guaranteed. 

However, another insurance policy from a leading insurance provider, which has been under-performing for the last 15 years, decided to hide behind the clause stating that dividend is non-guaranteed, so it is inappropriate to use the benefit illustration plan to compare with the actual performance. 

While it is acceptable that in some years the company will do well, and there will be unforeseeable bad times and low dividends, it is inconceivable that there is under-performance every year since the policy inception to the point that the benefit illustration plan itself is misleading and misrepresented the facts and figures. The insurance company may get away with the occasional under-performance reports, but it is ridiculous when there is a low bonus payout every year since the in-force date. It is obvious that the benefit illustration plan was too optimistic in its projection and some facts were not taken into account leading to an over-projection of bonus derived. 

The insurance company should have explained why at that point of time the assumptions made were relevant. Based on the benefit illustration plan, I have to pay for only 14 years, the critical years where the cash bonuses and accumulated funds would be enough to carry the policy until maturity. However, due to the consistently low bonus payout for the last 14 years, I have to continue paying the yearly premium as there is no way that the policy can self-fund until maturity due to low cash reserves. 

The insurance company must explain its yearly under-performance of bonus payout without hiding behind the non-guaranteed clause and disclaiming the benefit illustration plan as irrelevant once the policy is in force. In addition, the insurance company needs to provide a revised benefit illustration plan as the policy comes with a critical year. I am unable to determine how many more years I have to pay after the critical year as it is the insurance company’s policy not to provide any updates on the benefit illustration plan. 

Author: Ng Shu Tsung,  Kuala Lumpur