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
- ► 2013 (314)
- ► 2012 (1270)
- ► 2011 (1873)
- ► 2010 (2369)
- ► 2009 (1655)
04/20 - 04/27
- Calpers earned 19.1% return
- Homeowners convert to costlier fixed rate loans
- Bonus on participating policies
- Higher return and lower risk
- Is the worst over?
- Large writedowns by banks
- High food prices
- Peter Drucker: Innovation
- Innovation is easy and fun
- Declaring a benign cyst
- 12 months bond for training a new employee
- Cysts and cancer
- Send your questions by e-mail
- Non Disclosure
- U.S. Presidential Election
- Rejection of a critical illness claim
- Dual Currency Investment
- Soft commodity
- Beed cash? Rent out your HDB flat
- Credit Card Debt
- New way of marketing
- High prices of commodities
- Avoid high cost ILP
- Share your experience
- Buy Low cost insurance now
- Customer Care Hotline
- Cancel a high cost ILP
- Earn more than the rate of inflation
- Benefit Illustration
- Avoid buying life insurance on the street
- Opportunities in a Life Insurance Company
- Regular savings in Wealth Accumulator
- Switch into the Wealth Accumulator account
- New Life Insurance Company
- Decreasing Term
- Avoid structured products
- Time Honoured Values
- ▼ 04/20 - 04/27 (38)
- ► 2007 (1803)
- ► 2006 (696)
- ► 2005 (159)