Response to the two complaints

The Insurance Board of Sri Lanka (IBSL) has obtained the details of the two cases cited by Mr. M.Z.M Nizam in the article captioned “Assurance Schemes or Assurance Scams?” in The Sunday Times FT dated 12th November 2006 and would wish to clarify as follows:

Both these cases pertain to Endowment contracts for a sum assured of Rs. 50,000 each. An Endowment contract guarantees the payment of the sum assured on survival of the policyholder to the date of maturity or failing which on earlier death. Due to the guaranteed maturity value under the contract, an Endowment plan will accumulate a cash surrender value from the completion of the third year onwards.

The facts pertaining to the cases are as follows:

Case 1

The premium break down for the contract

Monthly premium for Basic Endowment Contract for Rs. 50,000 is Rs. 381.
Monthly premium for other optional riders taken is Rs. 1,137
Optional rider covers had been obtained for the following protection benefits
1. Additional Life cover Rs. 250,000
2. Total Permanent disability cover Rs. 500,000
3. Additional cover for accidental death Rs. 100,000
4. Partial Permanent disability cover Rs. 100,000
5. Hospitalisation & surgical benefits Rs. 100,000
Although the monthly premium paid was Rs. 1,518, a substantial portion of the premium was paid towards the rider benefits which provided protection. The premiums paid for the rider benefits are to cover the risk taken by the insurer and will not be refundable in case of early surrender.

The policy surrender value of Rs. 7,974 therefore should more correctly be compared with the monthly premium of Rs. 381. It should be also noted that this is an early surrender, resulting in a relatively low surrender value.

Case 2

The premium break down for the contract

Monthly premium for Basic Endowment Contract for Rs. 50,000 is Rs. 305
Monthly premium for other optional riders taken is Rs. 1,473
This contract too had rider benefits similar to Case 1.
Here too, it is an early surrender value soon after the third policy year. The surrender value given of Rs. 6,097 should be more correctly compared against the premium of Rs. 305 per month for 40 months and not Rs. 1,778 per month as suggested.