How to read a benefit illustration: columns, illustration rates, deductions and distribution cost

A benefit illustration, formally a policy illustration (PI), is the table an insurer gives you before you buy. It projects your premiums, death benefit and surrender value year by year. Each value is split into a guaranteed amount, which the contract promises, and a non-guaranteed amount, which assumes future bonuses at two illustrated investment rates of return. Reading it well means knowing which columns are promises and which are assumptions, and where the costs are hidden.

The document pack

MoneySense lists the documents you may receive when buying a policy; a POSB education article highlights five of them for endowments. Read these five as a set:

MoneySense reminds readers that "a portion of the total illustrated cash values for participating plans and ILPs is not guaranteed". Comparable endowment quotes can also be pulled from compareFIRST, the comparison portal supported by LIA, MAS and MoneySENSE.

Anatomy of the illustration table

LIA's published illustration format for investment-linked policies (MU 22/24 Appendix IV(b), version of 28 Jul 2026) sets the column definitions that participating illustrations also use:

MoneySense explains that reversionary bonuses, once declared, are added to the sum assured, but "only a proportion is payable" if you surrender. Terminal bonuses are "only calculated upon maturity, claim and/or surrender". That is why the non-guaranteed surrender value in early years can be much lower than the non-guaranteed maturity value.

Illustration rates: what 4.25% and 3.00% mean

For Singapore-dollar participating policies, LIA caps the upper illustration rate at 4.25% p.a. and the lower at 3.00% p.a., effective 1 July 2021. The lower rate must be at least 1.25 percentage points below the upper rate. LIA reviews the caps annually and bases them on the typical asset mix of participating funds and long-term return assumptions. Insurers may illustrate below the caps but not above them.

These rates are an assumed investment rate of return for the participating fund. They are not the policy's return and not a forecast. LIA says they "are used purely for illustrative purposes and do not represent upper and lower limits". Actual bonuses can come in below the lower rate or above the upper rate. For US-dollar plans, LIA's page covers only SGD policies, so read the rates stated in the illustration itself and the notes explaining them.

Surrender values and the break-even year

The break-even year is the first policy year in which the surrender value equals or exceeds total premiums paid. You need two versions of it.

Hypothetical extract, for illustration only (single premium S$100,000, 10-year term):

• Guaranteed break-even: the year in which the guaranteed surrender value reaches premiums paid. In this example, it falls between years 5 and 10.
• Illustrated break-even: earlier, but it depends on bonuses being declared as assumed.

A "capital-guaranteed" plan is one where the guaranteed surrender value at a stated policy year is not less than premiums paid, subject to the policy terms. Check which year that is and what voids it, such as alterations or partial surrenders.

Effect of deductions and total distribution cost

LIA's format includes a table titled "What is the impact of deductions on what you might get back?". It shows three figures for selected years: Value of Premiums Paid To-date, Effect of Deductions To-date and Total Surrender Value. The deductions include cost of insurance, distribution cost, expenses, any surrender charge and expected tax. For participating policies, they also include expected transfers to shareholders. MAS notes that shareholders can receive not more than $1 for every $9 of bonus declared to policyholders.

A second section, "How much are you paying for distribution costs?", sets out the Total Distribution Cost. LIA's wording is that it "is not an additional cost to you; it has already been allowed for in calculating your premium". Read it as the share of your premiums that pays for advice and distribution. It is not a separate bill, but it does reduce what remains to build value. A large effect of deductions in the early years is the reason early surrender values are low.

The product summary and the annual par fund update

MAS Notice 320 (Appendix B) requires the product summary of a participating policy to disclose the participating fund's investment objective and strategy, its current asset mix, net investment returns for the past three years with 3-, 5- and 10-year averages, the total expense ratio for the past three years, the smoothing approach and the plan's recent bonus rates. Under Appendix C, insurers send a bonus update every year.

How to read a fund update. Insurers publish a participating fund update each year in a broadly similar format. What each item means:

Past fund performance is not indicative of future results, and the figures describe the whole fund, not any one policy's return.

Annuity illustrations: payout columns

Annuity and retirement income illustrations add a payout schedule:

• Guaranteed payout per month or year, and the age at which it starts.
• Non-guaranteed payout at each illustrated rate, for participating plans. Each payout may include a guaranteed part and a non-guaranteed part declared yearly.
• Accumulation option: whether payouts can be left with the insurer to accumulate, and at what non-guaranteed interest rate.
• Death and surrender values during the payout phase, which often fall as payouts are made.

MoneySense reminds readers that you cannot take a loan against an annuity policy. See Annuities in Singapore.

Red flags

1. A "yield" or "return" quoted without saying whether it is guaranteed.
2. The illustration rate presented as the policy's return.
3. Totals discussed and the guaranteed columns skipped.
4. No mention of the effect of deductions or the surrender values in early years.
5. A US-dollar plan with no explanation of its illustrated rates or currency risk.
6. Pressure to sign before you have read the product summary.

Work through the 15-point checklist before signing, and use comparing returns to test the figures against T-bills and SSB. If you would like help reading the columns of an illustration you hold, you can register your needs through the contact options on this site.