Eagle Star life policies

At one time much was being written in the Press about Eagle Star life policies. One must not however get the impression that just because the subject has vanished from the public eye, then the matter has been settled and policyholders satisfied.

I took out my policy in March 1991 at the bank's insistence to provide life cover when I required a loan to build my house. I pay some Lm520 annually and was then promised a return of Lm46,000, tax-free, for a 25-year policy.

When just two years later rumblings already began to be heard, I wrote to Eagle Star and asked for the current maturity value of my policy. In July 1993 Eagle Star informed me that the estimated maturity value was Lm33,261. This deduction of some 25 per cent on what I had been promised was of course quite a shock. How could they have got it so wrong just two years earlier? Little did I the realise that much worse was to follow.

The estimated policy value continued to fall year after year, and the latest 2004 estimate is now in the region of just Lm15,500. And the policy still has 12 years to run. What is the chance of the investment return improving instead of continuing to decline further? Very little, as Eagle Star themselves confirm. A letter to policyholders dated May, 2004 states that "It is therefore likely that long-term returns will be lower but more stable".

So even with 12 years still to go, and premium payments of over Lm6,000 still to be made, Eagle Star are now 'offering' a return that will in all probability be less than Lm15,500, for total premium payments of Lm13,000 over 25 years. Some return indeed!

Ironically, Eagle Star inform me that if I convert the policy to a 'paid up' one, i..e. I stop my premiums at the current total of Lm7,254, I am guaranteed (i.e not estimated) a sum in the region of Lm10,000.

This is clearly the better option, as the result of my paying the Lm6,000 I still have to fork out till 2016 will only give me back an additional Lm5,000! Strange but true. It is much more worthwile to put it all down to experience, convert the policy to one 'paid-up', and invest the remaining premiums in the bank or some other more worthwile fund.