There are many policyholders who find it difficult to understand their policies and they do not know how to read the figures in the benefit illustration document to make a decision. When you buy a policy, you get documents such as benefit illustration, life insurance guide and product summary. In the benefit illustration, it will indicate both guaranteed and non-guaranteed benefits and the costs and charges relating to the product you are buying. Besides guaranteed benefits, the non-guaranteed benefits are typically in the form of bonuses that are added to the sum assured. They cannot be later reduced or removed once declared.
Like most traditional whole-life and endowment plans, premiums are pooled in a designated “participating or life fund”. The insurer invests the fund in a range of assets such as equities, government and corporate bonds, property and cash to earn returns that are used to pay the policyholders as well as to finance expenses.
Every year, you will receive an annual bonus update that will show you the bonus that your policy has accrued. You will also receive a par fund update which gives a snapshot of the insurer’s life fund performance over the past three years.
It is also important to ensure that you can afford the premiums and are able to pay them throughout the plan tenure. Policyholders who surrender their plans early are likely to incur losses and in worst case scenario nothing back.
So do you understand what do your existing polices covered? Do you have sufficient coverage to protect yourself for the future? When is the last time you review your policies? Have you thought of getting a second opinion to what you have bought?