I AGREE with the views expressed by Mr Larry Haverkamp in his letter last Thursday, 'Policyholders underpaid?'.

Many life insurance policies taken today require more than 15 years to 'break even'. This is the point where the cash value of the policy is more than the premiums that were paid over the years.

During this period, the insurance company must have earned more than 40 per cent on the premiums that have been invested. As an actuary, I know that the real cost of providing life insurance cover is about one-quarter of the gain. The remaining three-quarters are used to pay the agent's commission and expenses, or retained as orphaned money, as pointed out by Mr Haverkamp.

If the orphaned money is distributed to the policyholder, as suggested by Mr Haverkamp, the return would at least have been slightly better.

In recent years, consumers have been given a poor deal on their long-term savings in life insurance policies. A careful study of the Benefit Illustration will probably bring out this point. But the Benefit Illustration is difficult for consumers to understand and needs to be explained by an insurance adviser, who tends to skim over the negative points.

This is similar to the situation with the prospectuses issued for Minibonds and other credit-linked notes.

If consumers are given a poor return on their long-term savings in life insurance policies and other financial products, and in many cases they actually get a negative return, is it a wonder why many Singaporeans do not have sufficient savings for retirement after many years of hard work, thrift and savings?

I call on life insurance companies and financial institutions to reconsider their roles and responsibilities to provide a fair deal to consumers, as they strive to make profits for their shareholders. I hope the Government will also review this unsatisfactory situation in Singapore.

Tan Kin Lian

This article was first published in The Straits Times.