Tan Kin Lian's Blog: Twisting is bad for the customer

Tuesday, September 02, 2008

Twisting is bad for the customer

Insurance agents are provided with a range of complex products, such as whole life, endowment and investment-linked plans. There are many variations of these products, including the cash back features. Some have guaranteed returns, some have bonuses, and some products have values that are linked to a fund.

It is easy for an agent to confuse a customer to stop an existing insurance policy to buy a new policy. The agent can easily point out a different feature and explain why it is good for the customer. This is not true, but the agent is trained on how to make the customer believe in the statement.

The agent can earn a high commision on the new policy. This commission can take away newly two years of the premium. If the premium is $300 a month, the customer can lose up to $7,200 of premium as charges taken away from the new policy, mainly to pay commission to the agent.

This practice is called "twisting" and is illegal in many countries. It is quite rampant in Singapore. Many consumers are taken for a ride. If you find that an agent has "twisted" your policy, you should lodge a complaint with the insurance company or with the Monetary Authority of Singapore.

The insurance companies should also be blamed for this bad practice. They introduce new products, which gives the opportunity for the agent to twist the policy of other agents, from the same company or a new company.

How is the customer twisted?

1. If you have a whole life or endowment policy, the agent will tell you that it is better to buy an investment-linked policy by showing the projected returns assuming a high yield

2. If you have an investment-linked policy, the agent will tell you that it has lost money (which it has in the recent market down-turn) and move you back to a whole life or endowment or cash back policy.

Remember: the agent always gains from the high commission when you stop a policy and buy a new policy. This is always done at the expense of the customer.

2 comments:

zhummmeng said...: Twisting and churning are not just bad, they are crimes which must be dealt with according to the penal code. They are premeditated and schemed with intention to drain the customers of their money..
Just like selling whole life product, there is no intention to meet the customers' need. If there is ever that intention no whole life would have been recommended , term plans would have been more efficient and cheapest and this IS the PRIORITY of insurance.But most insurance agents'intention is to sell a WL and make the high commission.Isn't this a crime, by deception?; September 02, 2008 9:58 AM
Kelvin said...: I am not a fan of the idea of buy term invest the rest. My rationale is simple, there's no cash value in it. If your investment don't go too well, and you're unable to pay for your policy, it will lapse and when you want to take up the policy again, your the circumstances would be different (e.g. your health) and it would be more expensive. If it not convertible, you can be only insured up to 65.

However, if you were to take up a whole life plan, there’s cash value. In the event that you’re unable to pay for your policy, it’ll pay for itself until the cash value runs out.

To me, taking up a whole life plan is a win-win situation. If you love the people around you, you would not touch the money in the policy at all as you’d like to leave them with something when you pass on. If you need the money for your own retirement purposes because no one is meeting your retirement needs, you may do so and at a good rate.

For my case from the age of 27, after putting aside $150/mth for a sum insured of 100k till I'm 65, I would have paid 68k. Guaranteed value would be 100k, add that up with non guaranteed portion of 3.75%, (usually given) I would have amassed 180k on death benefit.

If I choose to use it for retirement purposes, my surrender value is 55k. Add that up with the projected invested return of 3.75% (usually given), I’ll be getting 103k for my retirement.

Now, try getting this kind of rate of return from the bank.; September 05, 2008 5:12 PM