【Pitfalls of Savings Life Insurance】Is a 100% Bonus Realisation Rate a Guaranteed Win?

10Life is often asked why the dividend realisation rate is not included in the scoring of savings-type whole life insurance. According to the Insurance Authority's GN16 guidelines, starting from January 2017, insurance companies are required to disclose the dividend realisation rates of participating products over the past 5 years. Dividends are expected returns and are non-guaranteed, making it difficult for consumers to assess how much of it is realistic. Therefore, some industry insiders describe GN16 as a tough measure for insurance companies, as disclosing dividend realisation rates can curb overly aggressive and unachievable dividend projections. News reports have also highlighted that the dividend realisation rates of some insurance companies are far from satisfactory.

Undoubtedly, disclosing dividend realisation rates provides consumers with more information. However, can we truly be 100% confident in products with dividend realisation rates of 90% or even 100%?

Most insurance companies currently only disclose information about insurance products sold in recent years, revealing only the bonus realisation rates (such as reversionary bonuses and special bonuses) for the first few policy years. However, for most long-term savings life insurance plans with extended contribution periods, the break-even point often takes over 10 years, with the majority of bonuses distributed in the later stages. The longer the policy term, the larger the expected bonuses. In contrast, the expected bonuses in the first few policy years are usually very minimal. Taking the product below as an example, by the 5th year, the policyholder has paid $50,048, but the expected bonus upon surrender is only $7,817*, compared to a bonus of $239,644* in the 30th year. The early bonuses are indeed very small. Even if the realisation rate for the first 5 years reaches 100%, the actual amount remains negligible. On the other hand, those with only around 50% realisation rates are truly puzzling.

* Includes reversionary bonuses and special bonuses

Additionally, the bonus realisation rate can only reflect past bonus performance. For long-term savings life insurance, future expected bonuses depend on the economic environment and the insurance company's investment strategy. Past performance is not indicative of future results.

Some insurance companies list the dividend fulfilment ratios for many of their products. Consumers should note that even within the same company, the dividend fulfilment ratios can vary across different products. However, consumers are often unaware of the sales proportions of specific products within an insurance company, and this data can potentially cause confusion. For instance, if a company has five products and 90% of its sales come from a single product A with a poor dividend fulfilment ratio, while the remaining 10% of sales come from the other four products with a 100% fulfilment ratio, the lack of transparency in sales proportions may lead consumers to mistakenly believe that the company’s overall dividend fulfilment ratio is very good.

Based on the data publicly disclosed by insurance companies, 10Life has also introduced a Dividend Fulfilment Score to help readers understand the performance of various insurers. However, it is important to note that the score is not infallible, and the blind spots mentioned above can also apply to the scoring system. Additionally, if you have any questions about insurance, you are welcomecontact10Life’s insurance advisors to find a savings insurance product that suits your needs. 

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.