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Surrender value differ sharply from projected value
16 Oct 2021 (849 views)  

A policyholder sought my advice. 

The projected cash value for his policy on the 30th anniversary is $106,800. The current surrender value, which is about half a year before the 30th anniversary, is $86,300. There is a difference of $20,500.

He obtained both values from the website of the insurance company. These numbers were specific for his policy.

When he asked the customer service officer of the insurance company, he was told that the projected values are for illustration purpose. The insurance company reserves the right to pay the actual value, which can be different from the projection. 

He asked me if I could explain the big difference in the values.

I asked him to get a written answer from the insurance company. Specially, he should ask for a breakdown for the difference components.

The figures are shown on the image below. 

Apparently, the big difference is in the accumulated dividend and terminal dividend components. 

I asked the policyholder to get the insurance company to re-confirm the projected values for the 30th anniversary.

If the projected values remain as stated in the table below, it would be advisable for the policyholder to wait until the 30th anniversary and surrender the policy at that time. 

The policyholder said that he now distrust the insurance company, and may change the surrender value on the 30th anniversary. After all, the projected value is "not guaranteed".

I said that the insurance company probably gives a "big bump" in the projected values on the 30th anniversary. If they confirm the figures, they are likely to maintain the figures - provided that the financial markets are not seriously affected within the next six months.

Personally, I do not like the freedom given to the insurance company to compute their surrender value in this manner. I am only explaining what is their current practice.

It is fortunate that the policyholder was diligent in comparing the current surrender value with the projected value. If he did not make the comparison, he might have surrendered the policy now and suffer a potential loss of $20,500. 
 
The policyholder had paid premium for nearly 30 years. He was very unhappy with the practice of the insurance company in calculating the surrender value.

Tan Kin Lian


Surrender value differ sharply from projected value
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A policyholder sought my advice. 

The projected cash value for his policy on the 30th anniversary is $106,800. The current surrender value, which is about half a year before the 30th anniversary, is $86,300. There is a difference of $20,500.

He obtained both values from the website of the insurance company. These numbers were specific for his policy.

When he asked the customer service officer of the insurance company, he was told that the projected values are for illustration purpose. The insurance company reserves the right to pay the actual value, which can be different from the projection. 

He asked me if I could explain the big difference in the values.

I asked him to get a written answer from the insurance company. Specially, he should ask for a breakdown for the difference components.

The figures are shown on the image below. 

Apparently, the big difference is in the accumulated dividend and terminal dividend components. 

I asked the policyholder to get the insurance company to re-confirm the projected values for the 30th anniversary.

If the projected values remain as stated in the table below, it would be advisable for the policyholder to wait until the 30th anniversary and surrender the policy at that time. 

The policyholder said that he now distrust the insurance company, and may change the surrender value on the 30th anniversary. After all, the projected value is "not guaranteed".

I said that the insurance company probably gives a "big bump" in the projected values on the 30th anniversary. If they confirm the figures, they are likely to maintain the figures - provided that the financial markets are not seriously affected within the next six months.

Personally, I do not like the freedom given to the insurance company to compute their surrender value in this manner. I am only explaining what is their current practice.

It is fortunate that the policyholder was diligent in comparing the current surrender value with the projected value. If he did not make the comparison, he might have surrendered the policy now and suffer a potential loss of $20,500. 
 
The policyholder had paid premium for nearly 30 years. He was very unhappy with the practice of the insurance company in calculating the surrender value.

Tan Kin Lian