Sunday, March 02, 2008

Value of Life Insurance

If you have a family with young children, are you willing to spend $30 to $50 a month to pay for a life insurance plan that can provide a benefit payment in the event of premature death of the parent?

Which do you prefer?

(a) Buy a whole life plan that covers about $10,000 to $15,000 and accumulate cash value?
(b) Buy a term insurance plan that covers $150,000 to $250,000 (i.e. no cash value)?
(c) No need to buy life insurance, as premature death is quite unlikely.

Do you prefer the payment of the benefit to be in the following:
(a) A lump sum,
(b) A monthly income for 10 to 20 years,
(c) A combination of both payments?

Are you willing to spend $30 to $50 a month as an expense (i.e. without any return), to provide adequate financial security to your family?

I recommend a term insurance plan that pays a lump sum benefit of (say) $50,000 plus a monthly income of $2,000 until the end of the term (say, until your age of 55). This will cost about $50 a month for a person now age 30 years old.


Anonymous said...

The public are clueless about insurance and easily become victims of insurance salesmen. Agents will sell only a whole life regardless of the needs of the customers. Option one is the priority for the agents. The agents get more commission from option one than the other options despite offering the lowest sum assured.
Usually the customer is asked for a budget.No analysis and counseling ever take place.

Anonymous said...

Those who choose option one must be mad or made mad by insurance agents.

Anonymous said...

We should not be putting all the blame on agents. Insurance agents' salary come mainly from the commission of the products they sold. Other agents from selling cars, houses etc, also do the same. Do you mean that only insurance agents work against us?We need to have some basic financial knowledge first.


Anonymous said...

It boils down to economics. As the competition is very stiff, insurance companies give higher commissions to agents for sale of a product that gives a higher profit margin to the insurer. Agents, being driven by profit, sell more expensive products. Most consumers are dumb, so they buy these products.

In order to solve this problem, we either gain great financial knowledge or wait for the regulators to force the insurers to reduce commissions. The implication of the latter is quite big, so I guess that is why MAS is stepping in very slowly.

Most in the blog sound altruistic. Come on. Even for the most of us salaried employees (including myself), who is not driven by a thicker paycheck? So naturally, you can expect agents to sell products that give the most commission.

Don't even be taken in my a new class of agents called IFAs. They have access to a full arsenal of products from many insurers. Most of them will surely sell the product with the highest commission.


Anonymous said...

The difference between insurance salesmen and other salesmen is that insurance salesmen have much bigger space for unethical practices. Car salesmen cannot talk a poor man into buying a Mercedes or BMW, can they?
Can an aircon salesman misrepresent the product? Yes, but it will be found out soon and not 20 years down the road.You cannot misrepresent a Mazda that it can fly or it can reach 1000 kilometres in 5 seconds, can you? It can be tested. Can insurance products or investment products be tested? Can I tell the insurance company to let me try the product for 1 year?
Insurance and financial products are "futuristic" products and only time can tell whether they live up to its claim or meet your goals.
The issue is not insurance salesmen earning a commission but the greedy agents picking products that give the highest commission without considering the clients' needs and financial ability. This is one of the despicable aspects of the disgusting insurance salesmen.
That is the reason why it is VERY VERY CRUCIAL TO ENGAGE AN HONEST AND COMPETENT ADVISER AND NOT INSURANCE SALESMAN.Salesmen only know selling. What do they know about financial planning and meeting the clients' needs?

Anonymous said...

Get paid, by all means but not at the misery of the clients.As blackbox said,who doesn't want a big paycheck?. But do you know how insurance salesmen earn their commission? Do they deserve the huge commission?
If you have read all the postings about about insurance salesmen, you know what they do to 'cheat the customers'. This is disgusting.Have you asked why people are under insured; have little insurance at the wrong time? Why customers lose money in investment? Why are customers loaded with a lot of useless whole life products and yet not fully insured?
No one grumbles if one recieves value for money advice.
You won't want to pay insurance agents to fill up some forms, do you? or read to you the features of a product, and charge you a commission, or filing a claim which they make you think that without them you can't claim, and which likely will not happen?
The so called IFAs are no difference. All this boils down to
having a good, honest and competent adviser.

Anonymous said...

IFA is singing Vivolife song now because IFA is offered by Income to sell their products now as an additional channel.

Anonymous said...

Mr Tan, more people are getting married late today.

Most married past age 30 or even late 30.

By the time they have the first child, they may have past 40.

Is what you recommend appropriate to age 55?

Many people will not see their children to independence by age 55 mostly, in the future.

Gone are the days when one can retire at 55 as children are mostly grown up to adulthood and are working adults.

You need to adjust your time frame of advice to reflect to change in time.

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