You will be able to read every table in a whole life benefit illustration and say what each figure means.
Ryan's illustration for the new whole life plan ran to nine pages. Jun Hao had been shown pages 4 and 9. Page 4 was a table with a column of rising numbers, and page 9 was where he would sign. Everything in between, including the pages that explained what the numbers meant and what they cost, he had flicked past.
Lesson 5.2 of Read the fine print: payslips, statements, policies and contracts, Guaranteed and non-guaranteed: reading the benefit illustration, covers the main table. This lesson goes through the whole document, in order, and adds the parts that decide what happens if your plans change.
The first pages set out the policy details: the life insured, the sum assured, the premium, how long premiums are payable, how long cover lasts, and any riders with their own premiums. Check each against what you asked for. A premium term shorter or longer than you expected changes everything that follows.
Then come the illustrated rates. Benefit illustrations for par policies must show non-guaranteed values at two assumed investment returns, set under industry rules that the Life Insurance Association publishes. They apply to every insurer, so illustrations can be compared. They are assumptions for illustration only, not returns you will get, and not a floor or a ceiling. Read the two rates off your own document; LIA's website explains how they are set.
The death benefit table shows what the policy pays if you die in each year. It is split into a guaranteed column and non-guaranteed columns at each illustrated rate. The guaranteed death benefit is usually the sum assured. The non-guaranteed part is the projected bonuses.
For life cover, this is the table that counts. Ryan's illustration, with figures made up for the example, showed a guaranteed death benefit of S$200,000 in every year, and a projected total at year 30 of about S$330,000 at the lower rate and S$420,000 at the higher one.
The surrender value table shows what you'd get back if you stopped and cashed in. Again it's split into guaranteed and non-guaranteed. This is the table for anyone who might need the money before they die, which is most people.
Here are Ryan's example figures at four points, against total premiums of S$4,000 a year.
At year 5, Jun Hao would have paid S$20,000. Guaranteed surrender value S$6,000, which is 30% of what he paid. Total at the lower rate S$9,500, at the higher S$10,500.
At year 10, paid S$40,000. Guaranteed S$22,000, or 55%. Totals S$33,000 and S$37,000.
At year 20, paid S$80,000. Guaranteed S$55,000, about 69%. Totals S$85,000 and S$100,000.
At year 30, paid S$120,000. Guaranteed S$95,000, about 79%. Totals S$150,000 and S$190,000.
Three readings follow from those rows. On guaranteed values alone, the policy never returns what he paid within 30 years. At the lower rate, the total passes his premiums somewhere between years 10 and 20, and the table's yearly rows show exactly where. And at year 30, S$95,000 of the S$190,000 at the higher rate is not guaranteed. Half the headline figure depends on future bonuses.
Two items explain the low early values. The total distribution cost column shows how much of what you have paid has gone to selling and advising on the policy, including commission, as a running total. In Ryan's example it reaches S$6,500 by year 5 and only S$9,000 by year 30, so most of it is charged in the first few years.
The effect of deductions table shows the value the policy would have had with no charges, the value after charges, and the difference. In the example at year 30 and the higher rate, the value before deductions is S$225,000, after deductions S$190,000. Charges and the cost of cover have reduced the projected value by S$35,000 over 30 years. Lesson 5.3 of Read the fine print explains both items in more detail.
The pages most people skip describe what happens if you can't keep paying. Check these before you need them, because by then it's too late to choose a different policy.
Most par whole life policies offer some of these. Automatic premium loan means that if you miss a premium, the insurer pays it by lending you money against the policy's cash value, at an interest rate it sets. It keeps the policy alive, but the loan and interest grow and come off any payout. A reduced paid-up option lets you stop paying and keep a smaller amount of cover for life, without paying further premiums. A policy loan lets you borrow against the cash value. A few policies allow a premium holiday.
Each option has terms: the interest rate on loans, what happens to future bonuses, and what happens if the loan grows larger than the cash value. Usually the answer to the last one is that the policy ends. Write down which options your policy offers and what each costs.
Jun Hao made a small table on a single sheet. For years 5, 10, 20 and 30 he wrote premiums paid, guaranteed surrender value, and the total at each illustrated rate. Under it he noted the total distribution cost at year 5, the effect of deductions at year 30, and the options if he stopped paying. Nine pages became one, and he could explain every number on it to Mei.
You'll mark up an illustration of your own in the same way. If you don't hold a whole life policy, ask an insurer or adviser for a sample illustration, or use one you've been offered.
Mark up a whole life illustration with the guaranteed value, both projected values and total premiums paid at years 5, 10, 20 and 30.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).