These case studies have been modified so as not to identify any actual cases at FIDReC. They are provided for purposes of learning and are not necessarily indicative of outcomes at FIDReC.
James bought a 15-year endowment policy through a bank as part of his retirement planning. The policy required him to pay an annual premium of $5,000 for five years and matured in 10 years. James would have to contribute a total of $25,000 in premiums.
James signed off on a Benefit Illustration when purchasing the policy that showed a guaranteed maturity amount of $20,000. There was also a non-guaranteed maturity component of $10,000 (assuming a projected investment return of 3.5%) and $20,000 (assuming a projected investment return of 5%). Thus, the total projected maturity values were $30,000 and $40,000 (depending on investment return).
The policy matured 10 years later, with a maturity value of S$28,000 - below the lower projection of $30,000. When James asked the insurer how the policy performed. The insurer shared that the participating fund achieved an average investment return of 3.55% per annum over the last 15 years. But, the insurer explained that high claims experience affected the participating fund. This led to the policy’s maturity value being less than the projected amount.
James did not accept this explanation and complained to FIDReC. James said that the Benefit Illustration showed that he should receive the sum of $30,000 if the policy achieved an investment return of 3.5%.
During the mediation, the insurer explained that the Benefit Illustration was illustrative in nature. The insurer said that it had paid the guaranteed values and was under no obligation to pay the non-guaranteed values. If James was unhappy about how the policy or the Benefit Illustration was explained, then James should complain against the bank who sold the policy.
James disagreed with the insurer. He felt that because the insurer issued the policy, the insurer should be responsible for how it was sold. James felt that the employer of the salesperson was irrelevant. He refused to compromise and chose to proceed with adjudication.
The Adjudicator dismissed James’s claim. The Adjudicator found that the words of the Benefit Illustration were clear. They stated that the document was for illustrative purposes only. James acknowledged this when he signed off on the Benefit Illustration. The Adjudicator also found that any complaint about the sale of the policy should be against the bank who sold the policy, and not the insurer.
Key Learning Points
- For endowment policies that are participating policies, the premiums paid go into a participating fund. The insurer invests the participating fund. How the investments perform will affect how the participating fund performs. Claims on policies and expenses may also affect the participating fund’s performance. Learn more about participating policies from Your Guide to Participating Policies.
- The Benefit Illustration is a document used at the point of sale. It is now known as Policy Illustration. Its purpose is to show the benefits and costs of a policy. It is not part of the insurance contract. Apart from the guaranteed values, all other projected values are non-guaranteed. Non-guaranteed values remain subject to the insurer’s discretion.
- Before bringing a claim, you should think about who the correct party to claim against should be. For example, where insurance policies are purchased through a bank, claims about how the sale took place should be against the bank. If the dispute is about the administration of a policy or policy terms, then the claim should be against the insurer.
- Although you may be disappointed about a policy’s maturity value or returns, this may not be a valid claim. For a valid claim, you must prove some wrongdoing. For example, that there has been misrepresentation or a breach of the insurance contract.
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