Tan Kin Lian's Blog: Do not cancel your policies

Thursday, May 01, 2008

Do not cancel your policies

Hi Mr. Tan,

I have been a loyal policyholder of NTUC for many years. I am really disappointed with the bonus cut, affecting several of my policies, including the policies taken for my children. I am considering to cancel all of these policies and to invest in unit trusts. Do you advice this move?

REPLY
Do not cancel your existing policies, as you will suffer a financial loss. You can lodge a strong protest against the bonus cut to the board of directors and to the MAS. It is a serious breach of contract.

When you bought these policies, you were given a scale of bonuses to expect in the future. NTUC Income does not have the moral right to change this structure, in an arbitrary manner. You can bring up this matter with MAS as they have to safeguard the "reasonable expectation" of the participating policyholders.

In the future, you should avoid saving in life insurance policies, including policies with bonuses and investment linked policies. After deducting the agent's commission and marketing expenses, they give poor value to the policyholder. The modest yield is now being reduced further through the manipulation of the bonuses.

You should also tell your friends to avoid buying saving-type life insurance policies with high upfront charge, sold by insurance agents.

Buy low cost Term or accident insurance to provide the protection for your family. Read this FAQ:
http://www.tankinlian.com/faq/savings.html

5 comments:

Anonymous said...: Mr Tan,

I am not in favour of the reduction of annual bonus as well.

I would like to clarify my personal understanding. In a benefit illustration, both the annual and terminal bonuses are factored into the non-guranteed component of the protection value and cash value. By looking at the the illustration, one cannot separate them.

If so, why is there a breach of contract? My understanding is that the policy contract usually states that bonuses are non-guaranteed. Do we, consumers, have a case?; May 01, 2008 12:04 PM
Anonymous said...: I do not know if this comment to not cancel policy is a damage control action but if it is, it should be done at the source - where the bonus cuts comes from.

I truly support the case where policies should not be cancelled if it does not benefit policyholders. But what if it does?

Case: Man age 30 pays $2,400/yr for whole life policy. Premium paying duration 50 yrs.

After 10 years, he has paid $24,000. Bonus in the future has been reduced and uncertain. If he cancels policy now, he gets back $10,000, financial loss, $14,000.

If he were to continue policy he is going to put in another $2,400 for the next 40 yrs, totaling $96,000, earning 5% or less p.a.

Should the current policy be cancelled and the $10,000 be used to get a good decreasing term and the rest be invested with the future $2,400 to be put into a low cost fund?

What would be the net gain in putting money in whole life policy earning 5% and putting money in a low cost widely diversitified instrument earning 8% over 30 yrs? $115,000. If the period of investment had been 40 yrs, or if the return from insurance policy is lower than 5%, the net gain is even larger.

When making financial investment decisions, one is bound to make some mistakes along the way. Is it better to continue with the mistake or make adjustments to fine tune for a better future?

The decision still lies with policyholders and facts of the matter. I think we should be very critical of how we engage our money affairs, after all, it is our own hard-earned money and not someone's elses - thus the old saying - a fool and his money are soon parted.; May 01, 2008 1:05 PM
Anonymous said...: Having been an agent for 6 years before I left the industry, I totally agree that insurance should be sold as insurance as it is.

That is to say, pure term, hospitalisation and accident insurance policies. Any other products such as savings, whole life and investment link policies benefit the agent and company more than the proposed insured.

The reason I left the industry is that I can't keep up with the high monthly sales target, due to the fact that the products I market are in majority pure protection products which gives out low commission rates, knowing full well that the rest of their financial planning's budget is better off investing elsewhere, with higher transparency and lower charges.

The sad fact is that the industry glorifies agents with their sales performance, whether it be ethical or not (who knows?). While the low performance agent are demonised as lazy, non productive and etc.; May 02, 2008 8:28 AM
Anonymous said...: For new policies NTUC INCOME has the right to change the scheme to what ever they want.

However, for existing policies,
NTUC should give people a choice if they want to remain with the old scheme of higher annual bonus or not. Changing the scheme half way, smacks of arrogance and akin to moving the goal posts whenever they like.; May 03, 2008 3:33 PM
Anonymous said...: I think to cancel an insurance policy is a serious and important matter. It has to be exercise with extra caution.

starlight.; May 04, 2008 1:45 PM