Analysis of Asia Junior Life Policy (TM Asia Life)

As most of my readers will know, I have a "legacy" whole life policy that I took over from my parents after I started working. My parents bought the whole life policy from an agent in the then Asia Life which is now taken over by TM Asia.

The policy name is Asia Junior Life Plus Assurance with Escalating Reversionary Bonus.

Every now and then, I will try to analyse abit of this complicated insurance plan and try to decipher each and single statement on the policy contract as well as bonus declaration statements to see what it means.

Today, I will try to interpret what I read from the Bonus Declaration Statement in Year 2010.

BONUS DECLARATION STATEMENT IN YEAR 2010

TM Asia was kind enough to send a pretty concise booklet on the Annual Bonus Update 2010 together with my bonus declaration statement for the year 2010.

Here are some key points that I note from the Annual Bonus Update:

1. This is the 3rd published bonus update report for TM Asia Life Singapore Ltd's Participating Fund. The annual bonus update 2010 is an update on the participating fund for the year ending 31 December 2009.

2. For 2007, gross investment returns was 12.25%. For 2008, -17.13% and for 2009, 20.05%.

3. TM Asia Life has an unmatched record of never reducing bonus rates. Since they have never reduced bonuses even during the financial crisis of 2008, we can see that insurance companies typically use a bonus smoothing technique to ensure that bonuses are paid out both in good times and bad. When times are good, they might not pay out too much bonus but instead "store" this money in the par fund so that they can have money to pay out bonuses even when the funds are not doing well. In a sense, the policy owner does not get the wild fluctuations in policy value that is associated with investment linked plans. On the downside, it also means that one cannot expect big bonuses even when the market is doing well.

4. Participating Funds can sometimes be "black holes" of investment where we know little about the assets that are being held. In the Annual Bonus report, I can see that the Top 10 Equity holdings for the Par Fund are:

1. TM Asia Equity Fund
2. DBS
3. UOB
4. OCBC
5. Singtel
6. Capitaland
7. Keppel Corp
8. Wilmar
9. Singapore Airlines
10. Singapore Exchange

5. The bonus rate is $10 for every $1000 Sum Assured. I am insured for $160,000. That means that I am entitled to $1,600 bonus for the year. In ADDITION, there is a bonus added on accrued bonus (by a rate of 1%). As my accrued bonus is now $20,292.02, the bonus on bonus is $202.92. The total bonus I get for this year is thus $1600 + $202.92.

6. The accrued bonus is not the cash surrender value. This is a very important point which many people are often mistaken about. The cash surrender value comprises guaranteed plus non-guaranteed components. The accrued bonus makes up part of this non-guaranteed bonus and is pro-rated according to the number of years I have been servicing this policy. In other words, if I surrender the policy now, only 25% of my accrued bonus + guaranteed component will be paid out to me. (As the number of years increases, the bonus is increased in percentages. That is why it is called "Escalating Reversionary Bonus"). To find out what is this amount, it is best that you obtain a Benefit Illustration from TM Asia Life.

That is all for today's analysis. I will analyse the various components at a later date. As mentioned, what I am analysing is based on TM Asia Life's Asia Junior Life Policy. It might not be the same as other insurance policies that are out there. If you are interested in me doing an analysis for your policy, you can send the relevant documents to my email at sgfinancialfreedom@gmail.com. Your name and stuff will be kept confidential but I will analyse the policy and publish my findings on this blog.