Insurance practitioners say that whole life and endowment policies are needed to give people the discipline of regular savings. If the policy is terminated, the owner faces a loss as the cash value is less than the premiums paid. The owner is disciplined to continue the policy until maturity, in order to get a decent return.
Is this compulsion good? Is it fair?
Over the past years, many policyowners have suffered large losses when they lapsed their policies. They were aware about the loss of their savings, but they had no choice. They were over-sold them on life insurance policies that they could not afford to upkeep. Many felt that they were short changed.
Is there another way to encourage people to have the discipline of regular savings?
I believe so. I believe that the best way to encourage people to save regularly is to give them a positive reason to save - an attractive return.
If people know that their money can grow with a good investment, they will want to save more and watch the money grow faster. They will realise that it is much better than spending the money.
Give them the flexibility to withdraw some savings (without penalty) to meet their financial needs for important life events, such as marriage, arrival of a child, sickness or unemployment. This flexibility will encourage them to save more.
Let us give a positive reason for people to save and grow their money. Give them an attractive return and flexibility with the right investment product.
Lesson: Invest your savings in a low cost, well diversifed, equity or balanced fund.
THe reasons insurance agents promote wholelife and endowment is obvious.
ReplyDeleteThe argument that these products help in the discipline to save is flawed.If this is true how do they explain the high lapses.Do the agents care? In fact this kind of products is bad for customers.They are expensive and the breakeven point is long. Any default incurs high loss. The customers are unaware and cheated into believing
that products are good for them.
The only reason I think insurance agents promote these products is high commission and nothing else.
Mr Tan, do you have any statistics showing the number of whole life policies terminated prematurely? I would be very interested to find out the proportion of whole life polcies that were terminated prematurely -- this would tell us if in general, whole life policies benefits the agent more than the policy holder.
ReplyDeleteindexfundfan @ indextown
1 can have both a term policy & a wholelife policy, it one's own perogative to purchase..
ReplyDelete