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  • FIRST POST
    splinter1955
    Endowment Final Bonus
    • #1
    • 19th Sep 08, 12:20 PM
    Endowment Final Bonus 19th Sep 08 at 12:20 PM
    hello i was wondering if anyone could offer advise concerning a final endowment bonus. I have a policy due to mature June 2009 and have been informed by the insurance company that a final bonus will not be paid on my 16 year policy when it matures. However a final bonus will be paid on a policy that is only for 10 years. This to me does not make sense as i would have thought that if a final bonus was available to be paid out a policy with a longer term would in fact receive some of the benefit.Can anyone offer advise? Thanks
Page 1
  • EdInvestor
    • #2
    • 19th Sep 08, 12:36 PM
    • #2
    • 19th Sep 08, 12:36 PM
    Which company is it with?

    The amount of final bonus depends on how well the markets did over the term of the policy and this will vary depending on the time frame. For instance a 10 year policy which matured in 2000 with 10 good years would do much better than a 10 year policy maturing in 2008, which would have suffered from 2 stockmarket crashes.There are other issues involved as well.
  • hedgehunter
    • #3
    • 19th Sep 08, 12:54 PM
    • #3
    • 19th Sep 08, 12:54 PM
    Terminal bonus represents the difference between the policies guaranteed benefits and asset share. What a zero terminal bonus means is that the guaranteed benefits (the sum assured and the existing annual bonus) exceeds the value of the asset share (this is the accumulation of the premiums plus smoothed investment returns less expenses and taxation).

    For the 16 year term policy is it most likely that greater amounts of annual bonus has been added over the term than has been added to the 10 year term policy, and so the policy guarantees are higher.

    Sorry its a bit technical, but so is the question!
  • splinter1955
    • #4
    • 19th Sep 08, 1:10 PM
    • #4
    • 19th Sep 08, 1:10 PM
    Phoenix Life
  • splinter1955
    • #5
    • 19th Sep 08, 1:45 PM
    • #5
    • 19th Sep 08, 1:45 PM
    Which company is it with?

    The amount of final bonus depends on how well the markets did over the term of the policy and this will vary depending on the time frame. For instance a 10 year policy which matured in 2000 with 10 good years would do much better than a 10 year policy maturing in 2008, which would have suffered from 2 stockmarket crashes.There are other issues involved as well.
    Originally posted by EdInvestor
    The company is now Phoenix Life (was Brittanic)
    The example you give I completely understand. What I do not understand with Phoenix is that my 16 year policy had some very good years returns(which I assume means they too must have made good profits) and receives no TB,whereas a 10 year policy to mature 2009 has had a less fortunate return but is rewarded with a TB
    The fact that I(as Phoenix said) have already had my fair share of profits is only down to the fact I started the policy in a better financial market than the guy who joined the "pot" 6 years later.
  • EdInvestor
    • #6
    • 19th Sep 08, 6:58 PM
    • #6
    • 19th Sep 08, 6:58 PM
    What I do not understand with Phoenix is that my 16 year policy had some very good years returns(which I assume means they too must have made good profits) and receives no TB
    Originally posted by splinter1955
    Here comes the other issue I mentioned. Up until around 2000, companies awarded quite substantial declared (aka reversionary aka annual )bonuses, often in the 5% range.These are guaranteed. Up until 2003, there was no requirement to reserve for these guarantees (or the guaranteed sum assured).Then the FSA enforced the rules.Thus a much bigger percentage of the assets backing your policy are in low risk low return assets such as bonds and cash, to guarantee your existing bonuses.

    After 2000, and especially after 2003,companies reduced their guaranteed annual bonuses to much lower levels, sometimes nil to avoid having to put more money into low return assets.In some cases such as Phoenix, the amount of assets backing some policies is actually less than the guarantees provide, because the company lost so much in the 2001-03 stockmarket crash.Such policies will have received no recent bonuses at all of either kind.

    Younger policies will receive much lower guaranteed bonuses and larger unguaranteed terminal bonuses. In a way these are much more like unit linked policies than traditional With profits.

    Basically you are now paying for the security the higher guarantees offer through lower returns.The With Profits fallacy, believed for many years, was that it supposedly offered high returns and security at the same time.

    But as we all know, there's no such thing as a free lunch.
  • splinter1955
    • #7
    • 20th Sep 08, 10:32 AM
    • #7
    • 20th Sep 08, 10:32 AM
    Here comes the other issue I mentioned. Up until around 2000, companies awarded quite substantial declared (aka reversionary aka annual )bonuses, often in the 5% range.These are guaranteed. Up until 2003, there was no requirement to reserve for these guarantees (or the guaranteed sum assured).Then the FSA enforced the rules.Thus a much bigger percentage of the assets backing your policy are in low risk low return assets such as bonds and cash, to guarantee your existing bonuses.

    After 2000, and especially after 2003,companies reduced their guaranteed annual bonuses to much lower levels, sometimes nil to avoid having to put more money into low return assets.In some cases such as Phoenix, the amount of assets backing some policies is actually less than the guarantees provide, because the company lost so much in the 2001-03 stockmarket crash.Such policies will have received no recent bonuses at all of either kind.

    Younger policies will receive much lower guaranteed bonuses and larger unguaranteed terminal bonuses. In a way these are much more like unit linked policies than traditional With profits.

    Basically you are now paying for the security the higher guarantees offer through lower returns.The With Profits fallacy, believed for many years, was that it supposedly offered high returns and security at the same time.

    But as we all know, there's no such thing as a free lunch.
    Originally posted by EdInvestor
    Thanks EdInvestor. Looks like the preverbial paddle has gone missing again.
  • sheslookinhot
    • #8
    • 20th Sep 08, 3:57 PM
    • #8
    • 20th Sep 08, 3:57 PM
    I wonder if the terminal bonus is in fact to annual bonus's. I would have thought annual bonuses were established after the latest set of annual accounts were known. I.e.the annulal bonus was decided after the last years performance of the greeater fund.

    I wouldn't have thought that there would be no terminal bounus because of good annual bonuses being added in certain years.

    I would try and get accturial advice on this one.
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    alance at 1 Mar= 1,931
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