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Offer better value to consumers

100 years ago, it was difficult to sell life insurance.

An insurance agent had to spend many months to learn about insurance and selling skills. A productive agent sold 20 policies in a year. It was hard work to convince people to buy life insurance.

The agent had to earn enough to make a living. So, commission had to be high, as much as 1 year of premium, to make it worth while for the agent.

The government gave tax relief to the policyholder. If the policyholder kept the policy for 10 years or longer, the saving in tax relief was more than the commission earned by the agent. The return to the policyhoder from life insurance was quite attractive, in spite of the high distribution cost.

About 20 years ago, the government in many countries removed the tax relief or made it worth much less.

Around that time, the life insurance funds were able to earn a high rate of investment return. If the policyholder kept the policy for a long period, the net return was still quite attractive, even after paying for the high distribution cost.

For example, if the insurance fund earned a net rate of 7% per annum, and the expenses effectively took away 2.5%, the net return to the policyholder was still quite attractive at 4.5%.

The scenario changes when investment return dropped. If the investment return was 4.5%, and 2.5% was deducted for expenses, the net return to the policyholder was only 2%. This would be unattractive for a 20 year investment.

Life insurance agents changed their selling pitch. They sold to customers about the importance of insurance. But the product is not really the right one, as it is too costly and give a poor return.

What is the solution?

Life insurance agents and companies have to change their approach.

They have to offer better value products to their customers. They have to reduce their distribution cost and other expenses, and distribute a larger portion of the investment return to their customers.

How can agents survive on lower commission? By finding new ways to increase the volume of sales, without having to work longer hours. In other words, by being more productive.

They should sell 50 to 100 policies a year, and not only 20 policies. The commission can be lower for each policy, but the income on the higher volume of sales will be higher.

Life insurance companies must also do their part by streamlining operations and reducing expenses.

By working together, agents and their companies can lower costs, increase returns and remain competitive in this new consumer-savvy environment.

NTUC Income is making the changes to provide better value to the customers. By adapting, we expect to prosper in the insurance industry of the 21st century.

Give work to students from poor family

NTUC Income plans to give work to students who come from poor family. They will be recommended by the school.

We will pay them at $6 or $7 an hour. The work can be done using the personal computer in the school. The student can work for 2 hours each day.

We hope to benefit 500 students in a year.

If these students do not have useful work, they may idle and loiter. Giving them useful work can help their family to pay for their school expenses. It will give them something meaningful to work for.

Invest in a 10 year annuity and save tax

Here is an idea. An annuitant can invest in a 10 year annuity and save on tax.

Annuity is now exempt from tax. Here is an example of how it can be used for tax saving.

The annuitant invest $10,000 to receive an annuity certain of $1,232 per year for 10 years. This assumes that 4% interest is used in the computation.

The total payment for 10 years is $12,320. The actual interest earned is $2,320. If the annuitant pays income tax at 10%, the tax payable on the interest component should be $232. By investing in an annuity plan, the annuitant save $232 on the tax.

The tax saving add 0.4% to the yield. This is the same as investing in another product to earn 4.4%, pay income tax at 10% and get the same net return as the annuity.

Know Your Insurance - Topics

If you like to learn about any of the topics below, you can visit
www.KnowYourInsurance.com.sg

INSURANCE
Motor Insurance
iYoung
Investment Linked Plan
Personal Accident
Travel Insurance
Medical Insurance
Saving for Education
FAST (Financial Advice)
An insurance cooperative
Life Annuity
Home Insurance

GENERAL
Manage Your Money
Take a holiday in Sabah
Invest your CPF savings
Buying a new car
Estate Duty

Know Your Insurance website - Mandarin & Malay

NTUC Income is launching the Mandarin and Malays versions of the "Know Your Insurance" website.

We first launched the English version of this website on 21 December 2005. It received encouraging response. A total of 33,000 people have visited the website over the past five weeks, or an average of 1,000 visitors daily.

5,000 people have taken the test on the insurance topics and are eligible for a discount when they purchase NTUC Income's insurance products.

A recent survey of 200 visitors:

82 per cent find the website to be educational
94 per cent of the users will visit the website again
82 per cent will recommend their friends to visit the website
74 per cent will take advantage of the discounts to buy insurance

The top five popular topics are: Motor Insurance, Investment-Linked Plan, Life Annuity, Medical Insurance and iYoung.