1. Introduction
This is the code name of a new life insurance product called “Buy term and invest the difference”.
I hope to get a new insurance company to offer this product to the public. I am publishing the details, so that some of the existing large companies can copy it and introduce it to the public.
2. Features
The key features of this new product are:
- Good yield on the savings
- Flexible
- Adequate coverage at low cost
This can be achieved by designing simple products that
- Fair to consumers
- Easy to understand
- Have low operating cost
- Reduced marketing cost
3. Yield
The savings are invested in a diversified investment fund that have an expense ratio less than 1% per annum. It is invested in quality investments, comprising of equities and bonds, that can earn an average gross yield of 6% over the long term. After deducting expenses, the net yield should be at least 5%.
This yield will give a higher return, compared to life insurance products that currently earn 3% to 4% for consumers.
4. Flexible
The product offers the following flexibility:
- To increase or reduce the savings rate
- To make withdrawals at minimal cost
An important feature of this product is that there is no front-end load to pay for the marketing expenses. The transaction cost is low and covers the actual expenses. This makes it possible for people to make withdrawals at minimal cost or penalty.
5. Insurance Coverage
The insurance coverage will be bought in a separate policy. It covers a selected period of 20 or 25 years to provide the following payments on death or critical illness during the period of insurance:
- A lump sum payable on death
- A monthly income benefit payable on death for the remainder of the term
- A monthly income payable for the period of recovery from a critical illness
This insurance coverage should be adequate to meet the financial needs. To reduce the cost, the coverage should be taken for a period of 20 or 25 years. It should not extend beyond the age of 65, where most people are expected to retire.
These products are fairly priced, based on the actual cost of benefits plus a margin to cover expenses and profit. The cost is much lower than similar products now offered in the market.
Beyond the period of 20 or 25 years, there is no need for the insurance coverage as the invested savings will accumulate to a sufficient amount.
6. Low marketing cost
This product can be marketing at low cost through the following strategy:
- The product is easy to understand
- It offers good value to consumers
- Consumers are educated about the product
- Many consumers are willing to buy the product directly
- The product can be purchased through the internet, call center or sales office
With low marketing expenses, consumers do not have to pay a hefty front-end load.
7. Conclusion
This product will give great value to consumers. I hope that more insurance companies will offer this product, so that consumers can benefit from it.
Tan Kin Lian
If this can be successful, why did you not introduced it when you were CEO of NTUC INCOME?
ReplyDeleteI hope you can be honest to give an answer on this, rather than being retired early by Ntuc Income and now introducing such principle in your blog.
Would you be bold to answer this?
You are maligning Mr. Tan .You should recognise Mr. Tan 's honesty to realise that products like BTIDs that will eventually benefit the public. Of course not the insurance salesman like you becuase you will become dinosuar soon. Salesmen depend on high commission from selling without adding value to the customers. In fact insurance salesmen are the scums of society all these years. Thank goodness, the days are numbered for them.
ReplyDeleteActually, I did introduce this product when I was in NTUC Income.
ReplyDeleteIt comprise of:
a) Family policy - which covers a wide choice of insurance coverages at low cost.
b) The Ideal plan (ID7) where 100% of the premium is invested in the investment fund.
At that time, and that was a few years ago, the educational effort was not given sufficient attention.
I hope that, with more educational effort now, more people will buy the "good value" products.
I hope that this anonymous person (6:10 PM)will avoid using unfair adjectives to describe insurance agents.
ReplyDeleteI have blocked many postings of this nature in the past.
In this instance, I have allowed it to be posted, as it is in response to another anonymous posting (12.36 PM) that attacked me personally.
I support such a product wholeheartedly. It is fair to the consumer and I hope many people will embrace it.
ReplyDeleteOne of the key advantages of savings policies is that it compels the policy holder to save a small monthly sum every month. This is important for people who do not have financial discipline.
Therefore, I hope that:
1. The monthly collection and management of the invested savings will not be so onerous as to incur a relatively high admin charge.
2. There is some form of mechanism or incentive that would encourage the policy holder to keep their savings intact for the mid to long term. Flexibility to draw out the savings at any time without penalty is a double-edged sword. Those without financial discipline would be at a disadvantage.
Discipline is something that no one can help you no matter what preventive mechanism you have in place.Don't you think CPF has it, yet many are creative enough to 'break' in.. Discipline is very personal. You and only you.
ReplyDeleteSo this talk about having whole life can inculcate discipline is nonsense. Just check how many lapses and compare with it with those who have term insurance.
Those who bought term insurance are more committed because it is purposeful.For those who bought whole life they had no idea why they bought in the first place.They bought to please the agents, bought under undue influence and duress,bought because their neighbour bought it or their cat gave birth etc. They all bought for the wrong reason.Therefore , lapse is matter of time.
ReplyDeleteSo what has discipline got to do with whole life? It is a misconception promoted by insurance salesmen who are interested in high commission only.
Zhumeng:o)