Help: CAP Educational Plan

[uls]

There's a lot of misconception about your post (and shows that you're not familiar with the preneed or insurance business). Unless of course you have a BS Statistics Major in Actuarial Science degree and can prove on paper that it is not a sustainable business overall.

First of all, the only non sustainable product line of preneed companies is the open ended educational plans, which CAP sold by the truckloads. While other preneed companies (like Philam, etc.) have halted selling it before (since the deregulation of the tuition fees for tertiary education) they were still marketing it out. This was determined via actuarial & financial computations - that is why currently all preneed companies are only offering a fixed-value educational plan.

By the way, an open ended educational plans is where you pay a fixed amount of money and then the preneed company pays for the full (or partial depending on the plan type) amount of the tuition fee regardless of the amount. While in a fixed-value educational plan, you pay for a fixed amount and you'll received a fixed amount on a predetermined time (regardless if your son/daughter will go to college).

Though even with the deregulation of tuition fees, CAP might have survived it (given their assets at least on paper). The problem was that they diverted their trust fund (which should be held under a trustee bank) to buy up a significant portion of Fil-Estate (which was way overpriced). Preneed companies are mandated to deposit around 60% of their premium collection as a trust fund (to prevent these kind of things), this is what CAP violated.

As I know it, CAP has offered to pay a fixed amount (depending on what the amount that you have paid for) instead of the full tuition fee amount. Will research about this.

ooookaaaay... im no academic... im no number cruncher.

But im dumb enough to understand that the insurance business is a gamble.

The insurance companies are betting that cars they insure wont get damaged or stolen, the houses they insure wont burn down, the people they insure wont get sick, and people they insure wont die ALL AT THE SAME TIME

The insurance companies dont have enough money to pay for all they insure.
Just some of them at any given time.

It's a tightrope, high wire act.

[niky]

Well, life insurance is also sold with a money-back guarantee (some plans, anyway...) if you don't die before the end of term, you receive a lump sum equivalent to what you pay multiplied by interest accrued over the years... probably about the same as a high-yield bond or time deposit... can't remember what exactly, since I haven't checked my policy for a while.

Pre-need plans can work, definitely. It's not like they depend completely on people buying the plans... the money they earn from planholders goes into investments. The problem with CAP, which is why they folded first, is that those investments were truly horrible ones.

I've talked to a friend of my Dad who was in banking at the time, and he said that CAP was investing like crazy in Fil-Estate... and with the amount of money coming in, some people got greedy and started over-valuing the land that was being bought up.

Criminal, yes, but not dangerous yet... since with development, those lands would probably amount to something. Cue the Asian financial crisis, and those assets went from ridiculously overvalued to impossibly overvalued. Everything went belly up, all at once.

Add to that the fact that those plans were all open-ended (which, yeah, is a lot like a pyramid scheme), and things just came apart. My wife was lucky to squeak by... she finished her CAP plan before things fell through... a lot of others weren't.

[1D4LV]

ooookaaaay... im no academic... im no number cruncher.

But im dumb enough to understand that the insurance business is a gamble.

The insurance companies are betting that cars they insure wont get damaged or stolen, the houses they insure wont burn down, the people they insure wont get sick, and people they insure wont die ALL AT THE SAME TIME

The insurance companies dont have enough money to pay for all they insure.
Just some of them at any given time.

It's a tightrope, high wire act.

sorry, but i cannot help but react. apparently, i strongly agree with mazdamazda that you have lots of misconceptions on the way the industry works.. this does not need number crunching skills nor academic skills. all you need to do is to research, ask questions and never react until you purely understood everything.


i used to work in a life insurance company. in fact, i have spent around 15 years of my life working in a life insurance company, and around two years in the non-life insurance industry and to tell you honestly, its not a gamble. the guys and the actuaries call it as a calculated risk or mortalities. (for additional information, please see http://en.wikipedia.org/wiki/Force_of_mortality). nothing wrong with that. all businesses operate with risks. banks for example, offer non-collateral loans or credit cards, which are risks. without risks, there is no room to grow. people also sometimes would have to face risks in everyday lives and decisions. you just have to keep the risks manageable and calculated and should have some fallback in case these risks get out of hand (talk about disaster and contingency management, which is one of my specialties).

anyway back to the topic, the mortality predicts what is a person's chance of dying of a certain illness or because of accidents. These mortality tables are used globally and are shared by insurance companies globally. standard sya. These mortality tables also computes for the probability of a person dying because of smoking, etc. If you had some statistics in college, you may just have an idea how to compute for probabilities. i just don't know the detailed process (i am not an actuary, but in Information Technology) the risks are reviewed every five years depending on the experience of each insurance company, which they also share to other insurance companies via the Insurance Commission and via the Philippine Life Insurance Association (PLIA). Each policy or product that these companies have issued or sold has an equivalent amount of reserve which is invested in government securities or foreign exchanges which makes them earn money for each policy via these investment channels. this called as statutory reserves (for additional information on statutory reserves, please see http://en.wikipedia.org/wiki/Statutory_reserve) if the policyholder dies, ok lang. may katapat na capital amount yan. pag hindi namatay, mas ok, dahil kumita yung investment equivalent capital amount.

sa vehicles, may mga mortality tables din sila na ginagamit, na para sa sasakyan naman. and besides, for vehicles, the risk is not too high compared to insuring people, dahil for one, yearly renewable ang vehicle insurance, and there are limits of liability and amount limits, so definitely, ang non-life insurance company eh hindi ganung ka exposed. the premiums also go to investments, so that, kung walang claim for a year, kumita pa yung premium amount mo. pag may accident claim, may participation. that participation amount sa car insurance is what limits the liability of the non-life insurance company depending on their investment returns dun sa premium mo.


for life and non-life insurance companies, everything goes through strict compliance which includes setting up of reserves for each policyholder and strict minimum capitalization requirement. in fact, the reason why some insurance companies were merged around three years ago is because these companies cannot cope or afford these exhorbitant capitalization requirements. everything goes through the strict eye of the Philippine Insurance Commission. If an item fails to pass a compliance or audit check, heavy penalties will be levied. And as far as i know, life insurance companies go through around four (4) audit sessions each year and are required to submit a quarterly compliance and financial report to IC and to other regulatory bodies. Even in investments, life insurance companies are imposed a certain limit where these companies can invest and how much portion of capital or earnings they can invest.

sadly, this is different from the pre-need industry, which is only overseen by the Securities and Exchange Commission only. They are not imposed of those strict regulations as mandated by IC. They can invest their money everywhere, without limit, and are not required to put up those reserves and strict capitalization requirements as those companies regulated by IC. DUN NAGKAPROBLEMA ANG CAP AND PACIFIC PLANS. They took a big gamble in issuing out policies and products which are open ended without having the reserve investment as i've pointed out above. And yes, their biggest mistake is they miscalculated the PHILIPPINE TUITION FEE REGULATIONS which does not impose a certain percentage of increase per year. To think of it, even if you have invested something which earns around 12% PA, and the tuition fee increase of your policyholder base is at around 20% PA or more, saan mo kukunin yung remaining 8% or more difference? It would be easy and more manageable if these preneed companies have overseas mother companies which can provide them with extra capitalization if needed. But sadly, hindi ganun. There are quite a few of these pre-need companies who have that option (like Philam).

For Pacific Plans, the best thing that the Yuchengco's could have done is to transfer capitalization amount from their other earning companies to Pacific Plans, but as they say, business is business, and there are existing business laws in place. The other earning Yuchengco firms have their own books, and its not easy to transfer money from that company to Pacific Plans. And besides, I think the SEC Law on Corporations prohibit that.

For CAP, and mahirap, they lost money on their investments sa Fil-Estate, and most of the bulk of their investments is on this. Kaya nung natalo, talo talaga. And they do not have the necessary capitalization base to fix it up.

It's like a person. Kung nabaon ka sa utang because of let's say, a failed business and you do not have any other source of income, saan ka kukuha? Your only recourse is to of course, declare bankrupcy and issue out PNs to your creditors so the interests will not kill you and at the same time, you are granted relief in paying your loans so you will not have piles of court cases in front of you. Same as this scenario. Walang tatakbuhan yung mga pre-need companies except the courts, so they can stop muna paying for their liabilities.

The only mistake that i saw here is the regulatory requirements of SEC. It should have been more strict. Or at least, the regulation of the pre-need industry should have been also transferred to the Insurance Commission. And they should have stopped selling those products nung na project na nila that there was something wrong. i don't believe na biglaan nangyari yan. there were signals years back that something wrong will happen. they have just overlooked it.

but then again, the effect that CAP and Pacific Plans had, pulled down the income the life and non-life insurance industry during the past two years, even though they operate differently. misconception ang problema.

so brother uls, do not generalize the insurance companies. all of them work and are regulated in a different way. not to flame ok? i am just explaining or stating what i think and what i know, because as i've said earlier, i've spent so much time in the insurance industry, life and non-life nga lang, hindi sa pre-need.

[1D4LV]

Well, life insurance is also sold with a money-back guarantee (some plans, anyway...) if you don't die before the end of term, you receive a lump sum equivalent to what you pay multiplied by interest accrued over the years... probably about the same as a high-yield bond or time deposit... can't remember what exactly, since I haven't checked my policy for a while.

these products are called endowments. these products are paid plus dividends. for example. you are insured for 1M for 20 years. if you survive the end of the 20th year, you will get 1M plus all accrued dividends that you have incurred for 20 years + the interest of the accumulated dividends, which is around 4% PA. so instead of just getting 1M, you may end up getting around 1.2M to 1.3M at the end of the 20th year. If you die before the end of the 20th year, your beneficiaries will get the 1M, the dividends and the dividend interests which is computed on the year of the policy the policyholder dies.

most life insurance companies now stopped selling money-back products because they found it to be not profitable over the long term because of the ever changing returns on the investment channels that these life insurance companies are using, thereby exposes them to yes (as i've said in my previous post) more risks. apparently, the earnings that these companies will earn from the investment channels are lower than what they have calculated should the policyholder survives or does not die after a certain number of years. and yes, policyholders also find these products too expensive and the returns are not too attractive.

life insurance companies these days sell the fixed payment period life protection (example: a life coverage that you can pay for five years) or variable life (a life insurance, with part mutual funds investment), because the market calls for it. apparently, as part of marketing research, the demand for investment products is now on the rise, and the demand for a shorter payment of premiums for whole life policies is also in demand.

ang alam ko na lang atang money back plan ngayon is from insular life, wherein, you have to pay something for 10 years. pag natapos ang 10 years mo, ibabalik lahat ng binayad mong premiums ng walang interest. pag may nangyari sa iyo (illness or death) while the policy is in-force, may certain amount kang makukuha.

[uls]

Sorry if what i posted sounded like sinisiraan ko ang insurance/pre need businesses.

I'm a nobody with no credibility and no influence whatsoever... so what i posted will have absolutely zero effect on the industry or anyone's job.

Im too insignificant to do any damage to anything or anyone.

I'm just expressing my views on something simple but made to look impressive, complicated and sophisticated by businessmen, finance and math geniuses.

Ok... so insurance and pre need are governed by different govt agencies and do not operate under the same guidelines...

But basically, the insurance and pre need business are similar coz they sell people peace of mind. Actually, promises. Promises that result in people having peace of mind.

People worry about their future.

What if i die, what if my car gets stolen or gets wrecked, what if i get sick, what if my house burns down, what if i cant afford my child's education...

Now there's something one can make money out of... calming people's worries...

"Pay us some money every month and u have nothing to worry about... kami bahala... promise."

That's it. That's the business.

[1D4LV]

Sorry if what i posted sounded like sinisiraan ko ang insurance/pre need businesses.

I'm a nobody with no credibility and no influence whatsoever... so what i posted will have absolutely zero effect on the industry or anyone's job.

Im too insignificant to do any damage to anything or anyone.

I'm just expressing my views on something simple but made to look impressive, complicated and sophisticated by businessmen, finance and math geniuses.

Ok... so insurance and pre need are governed by different govt agencies and do not operate under the same guidelines...

But basically, the insurance and pre need business are similar coz they sell people peace of mind. Actually, promises. Promises that result in people having peace of mind.

People worry about their future.

What if i die, what if my car gets stolen or gets wrecked, what if i get sick, what if my house burns down, what if i cant afford my child's education...

Now there's something one can make money out of... calming people's worries...

"Pay us some money every month and u have nothing to worry about... kami bahala... promise."

That's it. That's the business.

yes bro... that is business, and businesses are born because it is life's requirement. otherwise, if people are not concerned for their future and for their convenience, that business will not have been concepted of in the first place.

[uls]

And the reason why this thread was conceived in the first place is coz some company in this line of business took people's money and didnt keep their promise.

And that wont be the first and last time that happens.

Coz people are in business to make money first.

And there are few easier ways to make money that receiving premiums from thousands and thousands people who think they are paying their worries away.

I'm naive enough to believe there are lots of people out there in high rise office buildings wearing tailored suits who are far more ruthless than knife-wielding holduppers when it comes to taking people's money.

[1D4LV]

And the reason why this thread was conceived in the first place is coz some company in this line of business took people's money and didnt keep their promise.

-bro, the insurance business is all about promises. in fact, some of the business also are also about making promises (like money markets, mutual funds and UITFs that are being sold and serviced by banks, although these unfavorable business circumstances happen, i don't think there is a deliberate intention of stealing money from people. ang mahirap kung from the start may intention na manloko like those guys who established ponzi schemes.

And that wont be the first and last time that happens.

- they may or may not happen again. to avoid these, the controls on regulation should be made more stricter. so laws should be made in place. the audit functions of SEC should be revised, etc.

Coz people are in business to make money first.
-who is not in the business to make money? if the intention is not making money, then a charitable institution or a non-profit organization should be put up. but what will be in store for these business owners?

And there are few easier ways to make money that receiving premiums from thousands and thousands people who think they are paying their worries away.
- like what?

I'm naive enough to believe there are lots of people out there in high rise office buildings wearing tailored suits who are far more ruthless than knife-wielding holduppers when it comes to taking people's money.
- hmmm. don't generalize bro. i know there are people out there, but if its a legit business, then i don't see anything wrong with it as long as it is being done ethically without intention na manloko. but as i've said earlier, there are easy money making companies out there (like those multi-level marketing companies and those doing ponzi's), who may fit the description.

Lumalayo na tayo sa usapan bro. I know you are not a believer of insurance and i cannot blame you. I just do not like the way you generalize things.

[XTO]

I’m also a non-believer of those educational plans/pre-need. Many of my relative- way older than me experienced that and I learned from that – kawawa sila, para silang nagtapon ng pera, nagkasakit, tumanda sa problema which they think in those days as a complete peace of mind for their kids.

Back to the topic: for my kid’s future, we never consider educ. plans kasi still andun yung worries na baka ma-leche… bakit? even bangko bumibigay eh yan pa. (at least there’s PDIC) ang mahirap kasi dyan yung paiikutin ka na during times of trouble, syempre karamihan magwa-walang kibo na lamang so tagumpay “sila”

ganun din naman eh kung talagang gusto mong pag aralin ang anak mo eh natural lang na paghahandaan mo at ipa-prioritized mo ang savings para sa kanila.

[Honda97]

these things should be seen as investments and not insurance. there are no guarantees. in the end, the investor bears the risk of any loss. that's why you still have to choose a solid company to invest in...

[1D4LV]

I’m also a non-believer of those educational plans/pre-need. Many of my relative- way older than me experienced that and I learned from that – kawawa sila, para silang nagtapon ng pera, nagkasakit, tumanda sa problema which they think in those days as a complete peace of mind for their kids.

Back to the topic: for my kid’s future, we never consider educ. plans kasi still andun yung worries na baka ma-leche… bakit? even bangko bumibigay eh yan pa. (at least there’s PDIC) ang mahirap kasi dyan yung paiikutin ka na during times of trouble, syempre karamihan magwa-walang kibo na lamang so tagumpay “sila”

ganun din naman eh kung talagang gusto mong pag aralin ang anak mo eh natural lang na paghahandaan mo at ipa-prioritized mo ang savings para sa kanila.

same here. my parents enabled sending us to college without such pre-need educational plans so i will also do that to my kid.

[uls]

OT

Oh, here's an easier and more lucrative way to make a lot of money "legally" than collecting premiums from thousands and thousands of people...

Buy up loans from risky mortgage lenders, package the loans to make them look like fancy securities complete with AAA rating, and sell them to investors around the world.

Then after selling those securities, u take short positions on those securities in the derivatives market.

U make money selling them, and u also make money betting that those securities will go bad.

[Galactus]

^^^ I don't think that's feasible in the local setting.

Derivatives and fancy packaging of loans as asset-backed securities approach the complexity of mathematical equations, and are not as easily understood as other securities. No offense meant to local bankers and financial experts here, but even Western financial analysts themselves cannot fully comprehend the underlying principles, and their financial markets are much more advanced than ours.

And besides, there is no trading floor for derivatives locally, right? Only for stocks, warrants and options.

[uls]

^^^ I don't think that's feasible in the local setting.

Derivatives and fancy packaging of loans as asset-backed securities approach the complexity of mathematical equations, and are not as easily understood as other securities. No offense meant to local bankers and financial experts here, but even Western financial analysts themselves cannot fully comprehend the underlying principles, and their financial markets are much more advanced than ours.

And besides, there is no trading floor for derivatives locally, right? Only for stocks, warrants and options.

Ya i know...

All im saying is... or my point is... when coming up with ideas to make money, there is a fine line between scamming people outright (like Ponzi schemes) and scamming people "legally".

Those Wall Street geniuses who invented bad paper and sold them to investors wont even get a slap on the wrist. Pero kulong ang mga Ponzi scammers.

Pareho lang naman sila nang-biktima diba? Baket hindi ma-punish ung mga "legal"?

Those who bought bad paper see their money vaporize into thin air.

I have no sympathy for the banks who got stuck with bad paper. Buti nga sa kanila.

Naawa ako sa mga inosente.

Tulad ng mga pension funds na binentahan ng basura. Retirement money ng mga tao yan e.

Buti nalang hindi nabentahan ang GSIS and SSS natin.

well, sana hinde.

----

Just coz a company has an SEC registration, a fancy name and a fancy office with well dressed, well groomed, articulate staff, that doesnt mean meron sila malasakit sa pera mo.

kahit naniniwala tayo na nanjan ang gobyerno para protektahan tayo kung sakali tayo maging biktima, pag malaking pera na ang pinag uusapan, ang po-protektahan ng gobyerno ay ung nang-biktima.

Ano nga pala nangyari sa Orient Bank nila Gotesco?

The owners ran away with the money of depositors...

were they punished?

nah

[_Qwerty_]

mas maganda pa mag invest na lang sa government bonds.. medyo hindi ganon kalaki risk.. tax free pa.. i think pag-ibig sells housing bonds at 8% p.a.

[shadow]

woooohhh!!!! :popcorn:

[mark_t]

The only thing good about government is they never go bankrupt.

For someone to think that government bonds are a good investment must
have never invested substantially in one. Let us wait for somebody to invest his life savings
in bonds for say 20 years and let us read about his views.
Maganda concept ng preneed and sales are all time high nowadays. Problema lang talaga yon
culture ng owners ng CAP. They are the ones who decided not to pay whoever they are.
I have very limited exposure in these forms of savings but i bought them all, life insurance, preneed and mutual funds. Now, I have become a Life and Nonlife agent, this is what i do.


All I can say is mali talaga ginawa ng CAP na hindi nila ituloy ang contract nila with their
open ended policy.

Ngayon tahimik sila kasi nag mature na ang MRT bonds nila sa balita ko. Me pera na uli sila.

Wais talaga!

[mark_t]

And because CAP got away with it. GSIS FOLLOWED SUIT. Unknown to many
GSIS has stopped paying pension to their old policy holders. Tinamaan nito Nanay ko.

Uls actually has point, If you read your life insurance policy, you will not read anywhere that your claims will be guaranteed to be paid when due proof of the LIFE INSURED died while the policy is in full force and effect. Or to the Owner upon the survival of the Life Insured at Maturity.

What is GUARANTEED IS THE NON FORFEITURE VALUES in the Policy Schedule.


Under "The Contract" you will read:

Only the Chairman of the Board of Directors, the President, or officers
duly authorised in writing by the Board of Directors have the authority
to modify this contract. Any such modification must be in writing and duly signed by the authorised officer.

Its not rocket science, its not who has credibility or experience. its not all
the write ups.

My point is read your contract.

When I finally read my contract I realized that I was not as protected as the the insurance co. But my life insurance policy remains in force. I even
became an agent after my third policy. (Stupid Ba?)

Do I NEED IT? NO, BUT MY WIFE MAY MIGHT FIND SOME USE OF IT.

Will the CAP POLICY HOLDERS GET PAID? Yes, nobody knows when.

Will I buy another policy? Yes sana mga dalawa pa.

Matakaw pa rin ba ako sa Lechon? Syiempre, lalo na pag d ko kasama asawa ko.

Mababayaran kaya mga policy ko? Sana

[1D4LV]

And because CAP got away with it. GSIS FOLLOWED SUIT. Unknown to many
GSIS has stopped paying pension to their old policy holders. Tinamaan nito Nanay ko.

Uls actually has point, If you read your life insurance policy, you will not read anywhere that your claims will be guaranteed to be paid when due proof of the LIFE INSURED died while the policy is in full force and effect. Or to the Owner upon the survival of the Life Insured at Maturity.

What is GUARANTEED IS THE NON FORFEITURE VALUES in the Policy Schedule.


Under "The Contract" you will read:

Only the Chairman of the Board of Directors, the President, or officers
duly authorised in writing by the Board of Directors have the authority
to modify this contract. Any such modification must be in writing and duly signed by the authorised officer.

Its not rocket science, its not who has credibility or experience. its not all
the write ups.

My point is read your contract.

When I finally read my contract I realized that I was not as protected as the the insurance co. But my life insurance policy remains in force. I even
became an agent after my third policy. (Stupid Ba?)

Do I NEED IT? NO, BUT MY WIFE MAY MIGHT FIND SOME USE OF IT.

Will the CAP POLICY HOLDERS GET PAID? Yes, nobody knows when.

Will I buy another policy? Yes sana mga dalawa pa.

Matakaw pa rin ba ako sa Lechon? Syiempre, lalo na pag d ko kasama asawa ko.

Mababayaran kaya mga policy ko? Sana

huh? anong klaseng policy yang non-guaranteed ang claims?
afaik, ang non-guaranteed is yung non-forfeiture values and yung dividends. pero yung base coverage amount is guaranteed.

[niky]

And because CAP got away with it. GSIS FOLLOWED SUIT. Unknown to many
GSIS has stopped paying pension to their old policy holders. Tinamaan nito Nanay ko.

Sssst... somebody raided the coffers to fund millions in "social programs" (i.e.: straight cash dole-outs for scholarships, financial assistance, etcetera) after the stink regarding "Hey Garci". Rumor is... the GSIS is bankrupt.