Be wary of long-term insurance par contracts

IN A recent presentation on the latest market outlook hosted by a private bank, the chief investment officer jested about his mother who has made poor investment decisions. But her best investment, he recounted, was in zero-coupon Treasury strips decades ago, which paid for his university fees in the US.

That anecdote stands in stark contrast to the predicament of two policyholders who got in touch with me recently following my piece on the rates of return achieved last year by insurance participating funds.

Those policyholders invested in very long endowment contracts – around 40 years. Their policies are expected to mature in seven to eight years. Today, as I understand it, there are even longer endowment policies until age 120.