Tan Kin Lian's Blog: Benefit Illustration

Monday, April 21, 2008

Benefit Illustration

1. What is a benefit illustration?

A life insurance agent is required to provide a benefit illustration for the life insurance policy that they want to sell to you. This benefit illustration is mandatory, as a life insurance policy is a long term commitment. The format of this benefit illustration is approved by the Monetary Authority of Singapore. It can comprise of more than 10 pages and contain essential information about the policy.

The insurance agent is required to explain to you the key facts in the benefit illustration. In practice, the insurance agent is likely to avoid the key points that are important to the consumer, such as the yield on the policy and the commission earned by the agent.

2. What should the consumer look for in the benefit illustration?

You should ask the following questions to the agent:
a) What is the total premium paid, cash value and the net yield to the policyholder after 5, 10, 15 and 20 years
b) What is the amount paid as commission to the agent and the agency managers?
c) What is the gross yield expected from the insurance fund?

If you find the reduction in yield, i.e. difference between (c) and (a), to be more than 2%, then the life insurance policy is too expensive and give poor value to the consumer.

3. What yield should the consumer expect from the life insurance policy?

If you expect to pay premiums for 20 years in a savings type product (such as a whole life, endowment, critical illness or investment linked policy) , you should look for a net yield of at least 4% per annum. If you do not get this yield, the insurance policy gives poor value.

You should ask the agent to point out to you the paragraph in the benefit illustration that covers this point.

4. What is a fair rate of commission that should be earned by the agent?

As the consumer, you are paying for the commission earned by the agent and the agency managers. This is stated under the item of "distribution cost". You should ask the agent to point out this paragraph to you.

If you save a premium of $300 a month, the distribution cost can be more than $6,000. This is the money taken from you to pay the agent and the agency manager. This is too expensive. A fair rate of commision to the agent should be $200, and not a few thousand dollars.

If the agent cannot provide the information or a clear explanation to you, you should avoid the agent as he or she is incompetent or dishonest.

End of FAQ

7 comments:

Anonymous said...: Thank you, Mr. Tan, we will ask these questions. Agents who are qualified should have the answers. If they don't it is best to avoid them. They are salesmen who are out to cheat you with products they don't even know whether it is good for you. How can they claim they are taking care of you. How sincere are they? If they are, they should be qualified, they should know how to help you. This is sincerity. Otherwise it is bull and they are deceiving you. It serves you well to ask ; it is your right.; April 13, 2008 7:45 PM
Anonymous said...: It is important to ask and ask right questions. Why you need to? If you don't , you will regret for not doing so and end up with rubbish or garbage that you will carry through life without you knowing it.
I was once accosted by a NTUC agent at a roadshow trying to sell me what she called , buy one get one free.
Curiosity nearly killed the cat. I was interested to know but was cautious. I knew there was no such thing as free lunch especially dealing with an insurance agent.
The agent started a long winding presentation on the product revosave and then proceeded to tell how the product, vivolife, could be funded by revosave and could become free. I found it interesting and asked how would the package benefit me and how much enhancement would result by combining both.I asked for the yield of the streams of refunds,or called coupons by the agent, over the 20 years and how the yield of this revosave further enhanced by combining with vivolife in term of coverage and return.
The agent was caught and wasn't sure and was fiddling and fumbling
with a calculator.Not to further cuase her embarrassment I told her she need not calculate. I told her commonsense would tell you it made more sense to buy directly the vivolife instead of going through another product incurring another cost.I told her it was a misleading and unethical to use this ruse on innocent people and unwary customers. I told if she was caring and concerned for her cleints selling this package was a daylight robbery.A lot of innocent people didn't know and would trust her to buy it.
The problem , many people don't dare to ask, especially their friends or relatives or some nice looking or sexy females. I remember reading an expert advised never to buy from someone you know, not even from your brother or sister.; April 13, 2008 8:40 PM
Anonymous said...: "Buy one, get one free", I think this is really creative marketing.

"Never to buy from someone you know, not even from your brother or sister" - if we don't buy from people we know, from friends, from family, from cold calls, from road shows, from door-to-doors, ... then who should we buy from?; April 21, 2008 9:32 PM
Anonymous said...: Dear Mr. Tan

What does the term "End of FA" mean?

Does FA means "Financial Advisors"? With your new company, will it eradicate the role of the financial advisors?; April 21, 2008 9:34 PM
Anonymous said...: My friend sold me 2 whole life policies 6 years ago. I became a financial planner (insurance agent) 1 year ago and discovered for myself that buying term policy in the first place would have covered all my death insurance needs. Then I would not have to meet my agent friend yearly to do a financial review (she is trying to sell me more insurance products to make up the shortfall in my insurance needs). Now I know why she sold me whole life policy (higher commission) instead of a term policy which would have covered my insurance needs. I have left the insurance industry as I feel it does not always act in the best interests of the customers as insurance agents would want to make good money or make it to the million dollar round table.

What I want to say is that you do not have to be like me to go into the insurance industry to find out that buying term policy in general is better than whole life policy. Just buy term and invest the rest like what the blog advocates would make you far better off than buying whole life policy. Mr Tan Kin Lian has given you the revelations and insights that are useful to those who know nothing about insurance. Mr. Tan, keep it up.

(Pls put my posting as a new heading in your blog and not as a comment because I want the readers to read it to learn from my experience, thank you.); April 21, 2008 9:51 PM
Anonymous said...: Mr. 9.32pm, why don't you read the experience of Mr. 9.51pm.
First let me address the question of who you should buy from.You can buy from anyone provided you are given a proper need check and analysis. Then you are to ask a lot of questions like your life depends on it. Yes, you are putting your life on it because when something bad happens you or your family are supposed to recieve adequate and full compensation that is enough to take care of your circumstances and your family and not just enough for funeral expenses..
Secondly, agents are very creative. They create gaps for themselves. They create opportunities so they can make money again. The so called review is bull shit. If they had helped address adequately review would probably centre on change of circumstances and not gaps left unmet previously.
Mr. 9.32pm . I hope I have enlightened you about insurance agents, their creativeness and why one must be wary of them.

Zhumeng:o); April 22, 2008 12:09 AM
Anonymous said...: Mr. Tan,these are the areas that MAS is inviting the public and prominent people like you to give their views so that the best outcome is achieved for the consumers. I hope you can contribute to the consultation paper so abuses and malpractices by companies and their agents can be stopped. This is one good chance to change the industry and the ways products and advice are administered.
All the best to you.; April 23, 2008 6:36 PM