Is The end of the road for Participating Policies?
We bring to you updates and insights into how this might impact new policies industry wide.
With an eye towards protecting consumers, the requirements on how Insurers allocate their investments monies have turned more stringent. With the rate revisions, guaranteed returns on policies as well as projections are lowered accordingly in line with market conditions.
Whether significant or not is yet to be seen but we note that the changes are not a result of poor investment performance by insurers in general. We note that Insurers have had positive returns in recent years as highlighted in the article as well.
The Outlook Ahead:
Life Protection Policies
Newer Plans that confer minimum benefits moving forward to the ages of 65/70/75 being offered today might see a steeper drop off in coverage.
Existing Policyholders might see reductions in the Non-Guaranteed Bonuses in the upcoming years.
Endowment / Retirement Policies
Like Life Policies and in-line with the potential decline in the Non-Guaranteed Bonuses, we could potentially see reinvestment rates on Policies that pay coupons affected.
What can we do?
If you have existing Policies that offer Coupons, you may consider re-allocating the coupons if it does not adversely affect Capital Guarantees or similar benefits.
Consider using the coupons to participate in open market investments where there is greater control of the investment strategy in accordance to your desired Risk Profile.
Having a low volatility investment portfolio that aligns with your Time Horizon to retirement could be an alternative and an example of a rule of thumb to be followed could be seen below:
100 less (Your Current Age) = Proportion in Equity
E.g. A 40 year old today can afford to have a portfolio with 60% in equities and 40% in bonds.
Do discuss with your Trusted Advisor on the above as we continually stay the course to build our Wealth together!