Saturday, April 21, 2007

Life insurance with regular paybacks

Some life insurers market a whole life or endowment policy with regular pay-backs every one, two or three years. They sell large numbers of these policies.

This type of plan give poor value to the customers. Here is the reason:

* the insurer charges the normal premium for the basic policy
* they add an additional premium for the regular payback
* the additional premium has to loaded to cover the commission and expenses

For example, if the regular pay-back is $3,000 every 3 years, the insurer has to add $1,000 plus $100 (to cover commisison and expenses). It does not make sense for the customer to pay an additional $1,100 a year to get $3,000 every 3 years.

This is not transparent to the customer. The customer is not aware that he is paying an incurring additional expenses for this benefit. He is worse off.

Somehow the insurance agent is able to make this plan look more attractive than its reality. This is the power of false marketing.

2 comments:

. said...

The sales pitch by the bancassurance agent is "auntie, you put $4000 a year and every 3 years you receive $3000, this is better than interest.

Sounds good and logical, but this auntie who fell for the sales pitch is age 53, and for 21 years, each year she has to pay $4000 and every 3 years gets $3000.

End of 21 years, the maturity will be way below total paid.

Can she sustain premium to age 74?

Her daughter asked me, and I told her that is an anticipated endowment policy, it was sold by Company P.

I hope this agents that stations themselves in the bank will have some consideration for old folks who walked into the banks.

These are hard earned money of old folks, please bear a thought for them.

There are many ways to earn commission, but spare a thought for the poor old folks.

This case, client has to give up losing the first payment. I have advise her to seek FIDREC.

- Thomas Phua

Anonymous said...

The best way to avoid sleazy agents like this is to talk to multiple agents. Fill out a form online, and your Life insurance leads will be sent to a handful of agents who will then compete to get you the best plan. You can see through teh marketing more easily because each agent will be telling you something different - if they disagree, at least one of them is lying.

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