Tan Kin Lian's Blog: A fair rate of return

Tuesday, July 15, 2008

A fair rate of return

If someone takes your money and promises to return them to you, and breaks the promise, you will consider that this person has cheated you.

If you invest in a life insurance company and expects to get a certain rate of return, depending on the future investment yield of the Life Fund, and you get less than the fair rate of return, would you feel that you have been cheated? It seems that many life insurance policies give a lot of leeway to the insurance company to decide on how much you can get and how much they can keep!

8 comments:

Jordan Goh said...: Mr Tan it seems from your post that you are leaning more towards resentment with that particular insurance company's profit margins than the amount of benefits that policyholders can potentially stand to gain.

Well that's the whole gist about insurance isn't it Mr Tan? Paying a small premium to safeguard against a potentially catastrophic loss.

Based on your logic, one should not even apply for decreasing term insurance policies which you religiously recommend on your site. Invest those premiums in low cost diversified funds and accumulate returns instead of contributing to an insurance company's profit margins.; July 15, 2008 11:43 AM
siewkhim said...: The type of policies that allow insurance companies a lot of leeways are the participating and investment-linked policies. Manipulation of participating policy values is through the bonus system and for investment-linked through unit pricing and charging structure.

Knowing that these policies enable the insurance companies to "cheat" you, the only way is to avoid buying these damn policies.

For those who have purchased these damn policies, I would suggest we submit a class complaint to the MAS with Tan Kin Lian as our leader.; July 15, 2008 1:01 PM
Falcon said...: Yes, I feel cheated. What is even more frustrating is that these bums are now resting their bums on high priced chairs purchased using the our money. What to do. It has happened. Should we just move on?; July 15, 2008 6:34 PM
zhummmeng said...: Mr. Tan is against wholelife plans and not term.
Mr Jordan Goh, if you study the history of life insurance you will know that it is big con job by the insurers. It is a conspiracy. Did you know why and how particpating wholelife plan come into existence? It was and it is to ensure continous profit for the companies. They tell the consumers that it is 'permanent insurance' and it won't 'lapse'. The truth is it is a permanent source of income for the insurers.
Term can lapse, right? And if it lapses the insurers get nothing. But insureds also lose not much. This is uncertainty for the insurers. So insurers thought of way to manage this uncertainty of income and revenue by adding to the term or pure insurance an element of saving and converted it into a participating products to attract the consumers.It was ok when interest rate was very high but in the last few decades it was low and wholelife products became more of con job giving promises that they could not fulfill and if you can remember many resorted to cutting of bonuses. The industry practice adopted by nTUC will go the same way.
Please check with the companies how many lapses of wholelife and how many of those insureds who are in their 60s are in force.This will give a true picture of whoelife products that greedy agents have you believe that you must have one in your old age.If you really do keep it till old age the insurers are laughing all the way to the bank. Did you know what is the mortality charge or what your cash value is paying? You will be shocked by the BOMB.
Please ask your agent about all these, of course if he or she knows.
Anyway for them ignorance is bliss and for you customers is bane.; July 15, 2008 7:12 PM
Jordan Goh said...: Hi zhummeng,

My comment was directed at Mr TKL's post on "Large profit margin on Shield plan" where he commented "large insurance company collected $100 million on its private Shield plan and pays only $20 million in claims."

I must have commented on the wrong post! Oh well.; July 16, 2008 12:20 AM
Khiat Han Hwee Adrian said...: Lets say Mr XX is elected as the president of the country, he can be easily accused by the oppositions of not doing his job well especially if the decision he made is not popular with the people.

Sometimes, such decisions may take years to be proven good or bad. But before he can prove that he is right, he is forced by his people to step down.

He needs time to prove. It cannot be done overnight.; July 16, 2008 1:28 AM
Falcon said...: Adrian,
What you are talking about is called the "Time span of Discretion".
This time span of discretion works both ways. If the right person is elected as the president, then of course his good works will only be shown years down the road. Conversely, if the wrond person is elected, his mistakes will also be shown years down the road. So before we ask for time, we must see the track record and also intelligently assess the decisions made now. Not all popular decisions are good, the same goes for unpopular decisions. So do not assume that popular decisions are bad and that unpopular decisions are good. But one thing is for sure, popular and good decisions are best.; July 16, 2008 7:53 PM
Falcon said...: Oh, one other thing. When a decision has been made and a promise has been made, if it is not honoured, then the decision is not only unpopular but it is downright dishonest and unethical and hence trust level will go down. This has nothing to do with Time span of discretion but everything to do with honour and trust. So that decision cannot be good now or forever more.; July 16, 2008 7:56 PM