Tan Kin Lian's Blog: Avoid whole life policies

Monday, August 18, 2008

Avoid whole life policies

Many people are badly advised by insurance agents into buying whole life insurance. Being expensive (compared to term insurance), the consumer has inadequate insurance for their needs.

The agent says that "term insurance will expire after 20 years, and you will not be uninsured at that time".

Many people are unduly concerned about this point. It is largely irrelevant. Most people only need adequate life insurance to cover premature death when their children are young. An insurance period of 20 years is quite adequate to meet this need.

Beyond 20 years, they need to have sufficient savings for their retirement. As a whole life policy provide a poor return, it will not meet this purpose. Many people who invested most of their savings in whole life policies received a poor deal.

I fall into this category. Two of my whole life Living policies have not even reach the breakeven point after more than 10 years. Fortunately for me, they represent only a small part of my total savings.

The return on my two Living policies are far below what is due to me, if my insurance company had distributed bonuses fairly, based on the actual experience of the fund. As these are participating policies, there is an expectation that the insurance company has to act fairly, but they did not. The return on similar policies offered by other insurance companies are probably worse, as they have higher expenses.

It is best to avoid all types of life insurance policies, except for term insurance. Many insurance companies overcharge on their term insurance policies, to push consumers into buying whole life policies. You can compare the premium rates with the benchmark provided in this FAQ:

http://www.tankinlian.com/faq/benchmark.html

If you wait for a few more months, a new life insurance company will be offering term insurance at an attractive rate.

If you have the opportunity, you should join a group insurance scheme, such as a plan offered by SAF, SAFRA or your employer. It does not matter that the term insurance is on a yearly renewable basis.

4 comments:

siewkhim said...: AVOID THE FOLLOWING:

1. All forms of participating policies
2. All forms of investment-linked policies
3. All forms of structured insurance products
4. All kind of insurance agents
5. All insurers that push the above products; August 19, 2008 5:02 PM
Mellie said...: I would say that the statement is a bit general. Diff ppl have diff needs & objectives. Thus, it really depends on the agent competency AND integrity to do a good recommendation for the clients.

Though I myself do agree to a certain extent on term policies, not everyone has the disipline or know how to invest the rest.

Aprt frm term, investment linked premium is cheap too plus it's flexible. Though you gotta watch out for the escalating insurance costs.

Insurance is an important component in estate planning.

All in all, I would say it takes a good qualified planner to do a good/ holistic planning job.

Though for single solution financial products provider like insurance agents, I will say No to pushy selfish insurance agents, but there are a lot of good insurance agents doing a good job for their clients. So, Siew Khim's comment is really sweeping the whole lot, even the good ones.; August 20, 2008 11:43 PM
siewkhim said...: Dear Mellie,

The comments I made are from my own experience with my own life policies, Tan Kin Lian's own experience and the experiences of many policyholders who have purchased participating, investment-linked and structured insurance products in Singapore.

If you think that my comment is sweeping I leave it to test it out. We have had painful experience and we want to share especially with those who have not got involved in the situation listed by me.

Best of luck.; August 21, 2008 3:48 PM
Unknown said...: Thank you Mr. Tan as it is right to say that the bread winner's life should be insured untill the children are studying.Later the need is more on savings.

but please correct me if I am wrong.Manulife's three Generation policy does savings as well as insurence with 10 years of premium.; August 27, 2008 1:15 AM