High commission for life insurance products

Hi Mr Tan,

I enjoyed reading your blog.

You mentioned that some insurance products have high charges that take away 2% to 3% from the annual yield. Is this bad for cosnumers? Can a consumer buy directly and avoid this high charge, especially the high rate of commission paid to the agent?

TSB

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Dear TSB

When life insurance was first introduced more than 100 years ago, the government (in most countries) offered a tax incentive for people to buy life insurance. The premium paid towards life insurance is deducted from taxable income. The consumer is able to enjoy tax savings.

The tax savings help to offset the high charges and still give a fairly attractive return to the consumer. The high charge was required to train and pay the agent to advice the consumer about the value of this product.

About twenty years ago, most governments withdrew the tax incentive. The high charge become a burden to the consumers. Many insurance companies continued their old practice to pay high commission.

They trained their agents to convince customers about the "value" of life insurance, but they did not try to reduce the cost to the consumer.

NTUC Income is different. We reduced the cost to the consumer significantly. Hence, our deduction from the yield is lower than the market. Our customers are able to get a much better return from us, due to our lower charge.

If you are investing for the long term, the lower charge can give you a lot more on the maturity of your policy.