Come July, life insurance companies have to cap the projected returns for their participating policies. Instead of the current 4.75% and 3.25% p.a. projections, the upper illustration rate will be lowered to 4.25% p.a, and the lower rate will be 3% p.a.
What are the illustrated returns for anyway?
The two projected returns aren’t the upper or lower limits of the returns one should expect from the policy. Instead, as their name suggests, they are illustrated values of what one might expect to get if the insurer’s participating fund reaches certain numbers.
Take this table you’d typically find in a participating policy for instance. If the insurer’s participating fund does 4.75% p.a. throughout the entire tenure of this 10-year savings plan, you would expect to get the $54,653 maturity benefit as illustrated when you first buy the policy. Note that this does not mean your rate of return was 4.75% p.a; a $54,653 maturity benefit after 10 annual payments of $4,788 is a little less than 2.5% p.a. return.
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