This year, a number of insurer has annouced that they are cutting bonuses. So far only one did not cut bonus. NTUC Income did a major restructure in their bonuses structure last year and hence in a sense they did "cut" their bonus by making the cash value/death benefit more uncertain as a larger amount of the bonus has been shifted to the terminal bonus (special bonus).

Today I receive a letter from NTUC Income for a 22 years endowment with them. My endowment is a "S" series bonus series - meaning it is a very old series and was not affected by last years' bonus restructure. The letter gave a early "warning" that my endowment will be subjected to the same restructure similar to last year batch. At the same time, the bonus declared for 2008 (based on my old structure) remains the same for 2007, 2006 and 2005. I calculated that comparing the cash value today and with the amount I pay everymonth, my effective annualized return was 4.76% per annum. Not bad I would say. At least it beat inflation hands down. But with the new bonus structure going to be introduce next year with greater emphasis on Special Bonus (and a reduction in Annual Bonus), there will be a greater uncertainty in the cash value moving forward. This is because less amount of amount will be "lock" in and more of the amount will be dependent on the Special Bonus.

I have asked NTUC Income to give me a illustration for the next 5 years. Also the exact calculation on how the bonuses are calculated for death and cash value is not clearly explained.

Based on reversed engineering using historical data for my own policy and with the information provided to me in the letter, the cash value calculation as follows:

T1 = Total Bonus this year; T0 = Last year's total bonus, SA= sum assured

T1 = T0 + 2.3% * SA + 1.8% * T0

Surrender value = T1 + 9.64%*T1

The "9.64%" is a parameter calculated by myself. It seems this is the Special Bonus but according to Income, the Special bonus were 25% since 2005. I think the discrepancy is account for the differences in Surrender Value and death benefit. The former imposes a penalty for early surrender. Nevertheless updated benefit illustration should clarify things.

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