Tan Kin Lian's Blog: A very poor deal

Tuesday, March 04, 2008

A very poor deal

A mother bought a life insurance policy for her son. After 13 years, the cash value was only $2,700. The total premiums paid was $5,600. The policyholder suffered a loss of $2,900 plus the investment gain for 13 years.

For the next five years, the additional premium is $2,160. The increase in cash value is only $1,480. The policyholder will suffer a further loss of $580. The policyholder decided to give up the policy.

I consider that the policyholder has been given a very poor deal. It seems that, after the policy was taken, the policyholder is at the mercy of the life insurance company.

I advised the policyholder to seek an explanation from the insurance company, and later to lodge a complaint with the Monetary Authority of Singapore. The insurance company is a large company which has many hundred of thousand of policyholders.

7 comments:

Anonymous said...: Mr Tan,

Do you mind sharing more details regarding when the plan was taken up and what kind of reversionary/terminal bonuses were used in the projection? The values doesn't sound logical at all. The cash value should have built up over time. This is indeed shocking.

I don't think MAS can do much. Afterall, the insurer has got the approval from MAS to launch this product. The insurer had to produce the actuarial certificate to MAS at the time of launch.

blackbox; March 04, 2008 11:15 PM
Anonymous said...: Hi Mr Tan

In the 1st para, you mentioned total premiums $5,600 was made and policy has existing cash value of $2,700 with a "loss" of $2,900... just curious, are you expecting free insurance?

This is a whole life policy about $430/yr or $35/mth. Even if you were to get term insurance at $80/yr, you would have "lost", $1,040 after 13 years.

Furthermore, assuming that her budget is $430/yr and that is all she can spare, where would you suggest she invest the balance of $350/yr, to get a investment gain of 4% p.a.

Even if she had invested and able to get 4% p.a., for the last 3 months, all the equity markets were down, it would be hard for her to sell as her funds would have dropped at least 20% in value.

It would be good to know what the expected surrender value is after 20 years so that we have a better picture.

R.; March 05, 2008 1:42 AM
Tan Kin Lian said...: This is my reply to R.

The term insurance premium for a cover of $30,000 should be less than $30 a year.

The life insurance company sell high cost products that takes away more than 10 times of the real cost, and locks the customer into a product that they will suffer a big loss for the "whole life".

Many insurance agents make a living out of the losses of their customers. There are many new customers that they can take advantage of, each day.

I hope that the life insurance industry and its "professional" agents will be ethical in doing what is right for customers.

I have never seen any whole life policy that offers such a poor cash value after 13 years. Matters are getting out of hand.; March 05, 2008 2:10 AM
Anonymous said...: Yes , I agree that things are getting out of hand. Products in the market do not benefit the customers and they couched in complicated structure
that even insurance agents themselves have difficulty understanding let alone helping the customers to understand. The products are marketed heavily with language intended to mislead and confuse.The agents are highly paid to induce them to lie harder to close the sale.This is the situation today. Customers todays are seen as gold mine and not as client who have financial needs and help.Agents are highly trained to lie and cheat and mislead the clients.
MAS must stop this.
Customers must be warned.; March 05, 2008 12:34 PM
Anonymous said...: Example of a poor deal or unfair dealing is revosave. This is the kind of product MAS will be dealing with. There is no value for money and the clients are miserably shortchanged in term of protection and return. Only customers with mental problems can see what the product is extolling. Some fantasies of rainy and sunny day.To these people there is no difference and not even gloomy and doomsday.For them it is always happy day. But for the man in the street it is doomsday if whatever they invested ends up similar in real term to 20 years ago their retirement fund will be in dire straits.; March 05, 2008 6:57 PM
Anonymous said...: We probably miss the big guy, agents are paid decided by the company.

If this is what it is, should not MAS be going after the Board and the CEO of insurers for paying too much to their agents at the expense of the policyholder?

Sales force are motivated by renumeration and commission, and that is what is decided by the company, so the MAS has to clamp down not on agents but on the company.; March 05, 2008 9:30 PM
Anonymous said...: The new fair dealing guidelines deal with both, from ceo down to the supervisors and the agents, their remuneration and how they conduct their sale. These guidelines will come to pass and will be hailed at the watershed of the financial industry. You can be rest assured agents and ceo will be dealt with and this time no closing even an eye.
Hope that the errant agents will be wiped out.Product pushers and sellers better shore up or else ship out. One slip it is pay back time for these product sellers.; March 05, 2008 11:12 PM