Tan Kin Lian's Blog: Look for low cost products

Friday, August 31, 2007

Look for low cost products

Dear Mr Tan,

There are many investment products in the market. But, it seems that the life insurance product (ie endowment policy) has the biggest upfront cost to the consumer. Even the ILP has 19 months of upfront cost, according to Dr Money's website. Why are the charges so high?

REPLY

Many years ago, the governments in most countries wanted to encourage people to buy life insurance to provide protection to the family. They offered an attractive incentive - the life insurance premium can be deducted from taxable income.

Life insurance companies paid high commissions to agents to sell this product. The high cost is offset by the tax savings. The product still give good value to the consumer.

The situation changed, when most governments withdraw the tax savings. Without the tax savings, the high commission makes the product unattractive for consumers. Many insurance companies contined to sell these "poor value" products, instead of changing their product and marketing strategy.

Some companies adopt a different approach. They sell term insurance to provide the low cost protection. The consumer can invest their money in other investment funds. Some of these funds have low cost and give good value to the consumer. (But, there are high cost investment funds - which should also be avoided).

Lesson: Look for low cost insurance products (e.g. term insurance) and low cost invsetment funds (e.g. indexed funds). Avoid high cost products

2 comments:

Anonymous said...: Why do you think many people want to be insurance agents? There is money from products with high commission.
This is one the few industries where you don't need to have much education, only 4 "O" levels and you can make money more than the jobs which require degrees.The so called regulations are also lax. No wonder the degree holders are joining the fray.
As consumers you play a great role
in the supply and demand loop. If your demand for high com products, like products with cash values, continues to remain, there is no reason why companies should stop.
You can control the prices of insurance products by going for low cost term products but consumers are not.Terms products are very efficient to address your needs.The consumers must determine the prices.
If you are apprehensive about term products consult qualified financial advisers and not insurance agents to help understand about them and how these products can better meet your needs. Understand the concept of "buy term and invest the rest".You will realize that you have been taken for a ride all this time by insurance agents whose goals are to
make you buy products that give them high commission. Is 's natural.Who cares if consumers' needs are not met.
Remember your rights and power to change as a consumer.; August 03, 2007 12:22 PM
Thomas Phua's Blog said...: Wonder if all insurance company sell low cost, will the insurance company survive the business environment?

I think, if Mr Tan is fair, he will allow my views.

Is the distribution cost paying the agent commision only?

What about the CEO's pay where does it come from?

So it is not fair to always lament on the commission earn by agents.

What the agent earns is only part of it, distribution cost goes to pay more than agent commission.

I wonder if Mr Tan will comment on this or allow this to be posted.; August 31, 2007 10:49 PM