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Lessons From Capital Plus

>> Thursday, July 14, 2011

NTUC Income rolled out Capital Plus on 11 July and has closed the subscription on 13 July, 5pm.

The plan is a simple 2 year single premium endowment that gives a fixed 2.82% absolute interest (or 1.4% annual compounding). Down side is that withdrawal any time within the 2 years suffers a definite loss.

As can be seen, funds are still available in the market. People are hungry for short term plans that are relatively safe and give a fixed return higher than fixed deposits.

I believe this is a win-win-win situation that insurers can learn from.

First WIN, customers. People are happy with the plan. It is simple, straight forward and no hidden funny business. Returns may not be fantastic, but it is a risk-reward that people find acceptable given the current interest rate environment and duration of the plan. The plan also would not fall into the toxic category of products.

Second WIN, salesman. Agents still receive their commissions. It is of course not equivalent to milking from single premium ILPs, but it gives them an opportunity to catch up with clients and recommend them something that may be of interest to them. Well, bottom line is, some comm is better than nothing at all. Furthermore, it is only 2 years. The agents can go back to clients when the plan matures to follow up and earn more comm.

Third WIN, insurers. They still make profits. Rather than losing business to banks with fixed deposits, structured deposits and unit trusts, they can tap into this market to enhance their business.

From the response of the demand, it puzzles me why insurers are not designing products to supply to this demand. Perhaps they feel that funds into such plans is an opportunity cost from ILPs that can reap significantly higher profits.

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