The Truth About Life Insurance

POSTED IN ONLINE CITIZEN
www.theoninecitizen.com

A few people have asked about my motive in revealing the truth about life insurance, and how it reconcile with the products that are sold by NTUC Income during my time.

I have always held the view the the products must be priced fairly for consumers. The premium comprise of the cost of insurance, the marketing expense and administrative expense, with the balance being invested to accumulate the cash value and bonuses payable under the policy.

For marketing expenses, it was necessary to pay a fair remuneration to the agent to sell the life insurance. The commission rates paid to agents and agency managers in the market were far too high. The commission rates paid by NTUC Income were at a much lower level.

Administrative expenses were kept low. There were no extravagrancy. We were frugal. I felt that this should be so, as most of our policyholders were from the ordinary people who has to work hard to earn their monthly income.

The remaining premium were invested to accumulate the cash values and bonuses payable under the policy. The bonuses were distributed to all policyholders fairly.

NTUC Income pays a lower level of tax as a cooperative society. This helps to offset the marketing and administrative expenses, and give an attractive return to the policyholders.
Most insurance policies sold by NTUC Income in the earlier years enjoyed a high rate of bonus and gave an attractive return to the policyholders. A yield of more than 5% (even 6%) over the past 20 years can be considered to be quite good.

After leaving NTUC Income, I have more time to study what is really happening in the market. I get more feedback from the general public about the insurance plans that they have bought from other insurance companies.

I was also asked about the structured financial products sold by the banks and other distributors. These products have many of the bad characteristics of high cost life insurance products.

It becomes quite clear to me about how the general public is being exploited by the bad products offered by the financial services industry. They took away high charges (not properly explained by the financial advisers) and gave a poor return to consumers. I decided to be more active in giving my views in my blog.

This is my personal reply to Adrian Khiat, whom I know well. Adrian is a fair person, although he has recently written a strong criticism of me.

I am concerned about the change in the bonus structure affecting 310,000 policies sold earlier by NTUC Income. I am also conerned about the move by NTUC Income to be more "like the industry". They destroy the values that NTUC Income stood for, as a cooperative society, during the time that I headed it.

I do not wish to interfere with the new management of NTUC Income in respect of the way that they manage NTUC Income now and the new products that they introduce.

My wish is that they keep the old bonus structure for the old policies that were sold earlier, based on the benefit illustrations that were promised to the policyholders. There should not be an unilateral and arbitrary change.

The management can make an offer to these policyholders to move to the "new bonus structure". Let it be voluntary.

There are some good life insurance products in the market. Some other products can be improved by reducing the marketing and other costs, and offering fair terms to consumers.

In this way, the life insurance industry can do its "noble" role of serving the public by truly serving them with the insurance protection and a fair return on their savings.

Tan Kin Lian