Prospect Educational Plan in Crisis
Case Study : Prospect Educational Plan in crisis
Nature and Background of Case:
Educational plans are essentially savings/investment accounts where you put money in, the money is invested in financial and other securities within government guidelines, and your money is supposed to grow over the years and eventually gets paid out to cover a beneficiaries school tuition and expenses. Several years ago, and seemingly out of nowhere, accusations came flying from all directions about pre-need companies. According to the accusations, they were either bankrupt or nothing but a scam, depending on which company you're looking at. And since a large portion of Filipino families relied on these pre-need companies in order to send their children to college, widespread panic ensued the moment these accusations hit the press.
Prosepect Educational Plan paid out huge commissions to agents, so that in some cases out of PHP35,000 that a customer paid in, only PHP15,000-20,000 actually went into the “trust fund” that had to grow to pay off the future tuition fees. Prospect Educational Plan sold open-ended educational plans, and that the rise in fees distorted the actuarial assumptions. Holders of this type of plan can go to the most expensive schools but they pay a higher premium. There are two kinds of Prospect Educational Plan educational plan holders: those who are already getting paid for tuition and those who are called “non-availing” mainly because it takes roughly 10 years for them to start getting their benefits from Day One of the plan. Obviously, the availing planholders have the edge. Not so obvious is the fact that every time they get paid, it is to the prejudice of the non-availing. The non-availing outnumber the availing planholders almost 9 to 1. Of the 780,000 planholders of Prospect Educational Plan, only 90,000 are availing.
The company claimed that the money that was paid in and invested yielded far lower returns than they had projected, so the double whammy
Nature and Background of Case:
Educational plans are essentially savings/investment accounts where you put money in, the money is invested in financial and other securities within government guidelines, and your money is supposed to grow over the years and eventually gets paid out to cover a beneficiaries school tuition and expenses. Several years ago, and seemingly out of nowhere, accusations came flying from all directions about pre-need companies. According to the accusations, they were either bankrupt or nothing but a scam, depending on which company you're looking at. And since a large portion of Filipino families relied on these pre-need companies in order to send their children to college, widespread panic ensued the moment these accusations hit the press.
Prosepect Educational Plan paid out huge commissions to agents, so that in some cases out of PHP35,000 that a customer paid in, only PHP15,000-20,000 actually went into the “trust fund” that had to grow to pay off the future tuition fees. Prospect Educational Plan sold open-ended educational plans, and that the rise in fees distorted the actuarial assumptions. Holders of this type of plan can go to the most expensive schools but they pay a higher premium. There are two kinds of Prospect Educational Plan educational plan holders: those who are already getting paid for tuition and those who are called “non-availing” mainly because it takes roughly 10 years for them to start getting their benefits from Day One of the plan. Obviously, the availing planholders have the edge. Not so obvious is the fact that every time they get paid, it is to the prejudice of the non-availing. The non-availing outnumber the availing planholders almost 9 to 1. Of the 780,000 planholders of Prospect Educational Plan, only 90,000 are availing.
The company claimed that the money that was paid in and invested yielded far lower returns than they had projected, so the double whammy