Tan Kin Lian's Blog: Lack of transparency in terminal bonus

Sunday, September 21, 2008

Lack of transparency in terminal bonus

Dear Mr. Tan,
With the problem facing AIG, is it better for me to buy insurance from NTUC? Will my savings be safe?

REPLY
It is better to buy term insurance and invest the difference in a low cost fund. Read this FAQ:
http://www.tankinlian.com/faq/fptips.html

NTUC now declares a low rate of annual bonus with a large part of the maturity benefit in the form of non-guaranteed terminal bonus. This is similar to the practice of the commercial insurance companies.

It is better not to rely on the non-guaranteed bonus, as there is a high chance that it will not be paid, even in good times. There is lack of transparency in the distribution of terminal bonus. The insurance company gets away with paying less than what is fair to the policyholder.

8 comments:

Raymond T said...: Hi Mr Tan, is there any solution to this then? Buy Term and Invest the Difference?; September 21, 2008 9:56 PM
zhummmeng said...: Many who rushed to terminate their AIA whole life policies discovered to their horror that their polices haven't broken even, even after more 15 years or have low return. This is another true life evidence that whole life is bad and poor and rip off product for protection and saving.It is as good as scam.
Shifting to another insurer or ntuc is no difference in real term.The nominal difference is marginal and your saving is still at the mercy of inflation and other unforeseen events that may happen.The recent restructuring of their bonuses makes you taking higher risk and you may or may not get higher return.Looking at current market situation it looks bleak.It is still a whole life product and is still a lousy product.
You can see from what is happening WL gives you no control of your policy and you are at the mercy or the insurer.In such an event like AIG faced all exit doors were closed in your face unless you pay a ransom of less cash value.Down the road i am not surprised that you will be short changed in your special bonus too. Remember it is not guaranteed and the insurer can suka suka do what they like.
Today, this year if you are cashing out I am sure the special bonus will be terrible because every insurer's investment suffered loss in this subprime crisis.The insurer can declare a zero SB, right?
You won't even get a good annual bonus if the investment return is low too.
Despite so much negative things have been written about WL why are you going for WL. Going to another insurer you CANNOT escape what happened to AIA. All the insurance companies are using the same "industry best practice" and that makes them no different from each other, right?
Buy term and invest the rest is the best. You can AFFORD the FULL protection you NEED and you can get the best return from your investment and not sharing the same portfolio with the other policyholders whose needs are different from yours. Your needs and risk tolerance and goals are treated differently from the others , right? Buying WL there is NO DISTINCTION . Everyone is the same. It is one size fits all. Is there such thing, such product. WL is sold as one size fits all product and you are assumed to have the same needs and risk as the rest.
Investing yourself and with the help of a good financial coach you will get much better return because the investment portfolio fits your needs, time horizon and goals ONLY. It is customised or taylored to your needs.
Remember using BTITR as a means of achieving your goals doesn't mean you are DIYing.You are NOT ALONE. You have a life financial coach to come alongside you and not a one off salesman like insurance agent.; September 21, 2008 11:12 PM
Unknown said...: Here is another blog I read. Some comments on bonuses & dividends.

http://patlim.blogspot.com/2008/09/latest-update-on-aig-aia-5.html

Go down to "my comments" to see a different point of view.; September 22, 2008 8:36 AM
zhummmeng said...: I am wondering if the current financial debacles have made any impact on consumers' impression or understanding of the role of advisers and the products in their financial life.
Have consumers become wiser? Do consumers realise that both advisers and products can be a boon and a bane.Do they realise that wrong adviser and wrong product will result in irreparable damage?
I hope the present saga will make consumers more careful in their dealing with insurance agents and sales consultants.They must understand the difference between advisers who desire to put their clients' interest first and insurance agents who are only interested in making a sale; and advisers who are honest and competent vis a vis insurance agents who have little knowledge and training.
Today the cost of running insurance companies have gone up; the CEOs and staff demand higher salaries and so are many other costs.The agents want more commissions. Who pays for them? Who else? The consumers pay for ALL of them.
But have the products gone up in benefits? Now the good old fashion products have been restructured and repackaged and reshaped until out of shape to cover up the increased costs. The restructured insurance products are plentiful in the market today claiming meeting NEW NEEDS.It is scam.
An example are the cashbacks anticipated endowment.
Have our needs really changed? Maybe forms but the basics remain the same.
The poor consumers have the impression that they are new products with enhancement and without knowing they are paying more for less now. Of course , the greedy insurance agents help in this cover up and they do it willingly because of money.
Some companies know their salespeople are ill qualified and to keep the salespeople motivated the companies keep up with 'new' products to get them to bring in revenue by hoodwinking the consumers. Good financial planners don't need these 'new' products to work with unless they are truly new products with better enhancements and value for money.
But is there such a thing as 'new' products that the insurance companies want us to believe? No!! They are reshaped and restructured
products.There is no new discovery,
scientific or natural, that a 'new' insurance product can have for enhancement.The so called new products are recycled and crossed from old products resulting in dilution and increase in cost to meet the increased costs of operation. This whole exercise is a sham and meant to feed the unqualified insurance agents with something 'new' to crow about to their customers. This whole thing is a conspiracy.
I hope consumers are now wiser and will examine and put every thing under their microscope before committing.
NEVER buy at roadshows. You will be pressured into committing. NEVER buy from insurance salespeople, they are not qualified. NEVER buy from consultants who have mdrt, cot or tot logos on their name card. They are scammers and cheats.; September 22, 2008 12:52 PM
Anonymous said...: Check to see whether your new top managment in your financial institution is a foreigner. If he is, then chances are high that your interests is not his top priority. You may not see your loss immediately since it takes some time for such things to unravel. It sometimes take decades to see your loss and by that time, the foreigner is long gone.; September 23, 2008 10:23 AM
Anonymous said...: Since restructuring the bonus ntuc has lost a lot of business .There had been much bad publicity and the public is wary of this structure. Those who avoided buying ntuc WL par participating products made the right move because the money in the special bonus is badly mauled by the current meltdown.
Pushing policyholders' money to the terminal bonus is damned silly idea. I wonder where have the actuary and the ceo got this idea from when many insurance companies in the world are shifting to the asset share model. The best practice or industry practice is an obsolete practice and I am not surprised if the market continues to be bad the annual bonus will be further reduced to inject more money into the specail bonus for them to lose.; September 23, 2008 6:08 PM
Anonymous said...: ntuc is another company to avoid since the bonus change. Their salesmen now have misleading titles. i don't know why they dare to use the title when they are not qualified and competent.Some even have senior and excutive before the title financial conusltants This is very misleading and misrepresent to the customers what they cannot and not competent to do. This is unethical and MAS must stop the misleading use of titles lest the consumer get conned. Look at ntuc salesmen and women they are nothing but salespeople who peddle and push expensive products at roadshows.
I remember in one of ntuc past adverisements for their salesmen who achieved some mdrt awards they were called them super dupers.As i understand the word duper is someone who dupes or cheats. Now i know why these achievers were called SUPER DUPERS. Yes they duped cutomers into buying expensive whole life and endowment products to qualify for these awards

A Consumer; September 24, 2008 2:18 PM
Anonymous said...: Can someone check how much losses ntuc life fund has incurred since changing the bonus. Does having more money into the life fund help the return? or they have lost more.

busy body; September 24, 2008 7:22 PM