You advised a person to have life insurance for 5 to 10 years of earnings. If I earn $50,000 a year, do I need $500,000 of life insurance? How much will it cost? Can I afford it?
REPLY
Assume that you have a young family and you are now 30 years old. If anything happens to you, you your family will need an income for the next 25 years (until the children are grown up). Let us assume that 60% of your income is set aside for the family expenses (i.e. 40% is for taxes, savings, and your personal expenses). Your family needs $30,000 yearly for the next 25 years.
Using a discount rate of 3%, the present value of the 25 year income stream is $538,000. This is 10 years of your income.
If you take a level term insurance for 25 years, you have to pay an annual premium of about $850 (male) or $475 (female). This are my indication of the fair premium rates. It represents less than 2% of your earings. You may be able to find an insurance company to offer a lower premium rate.
You can set aside 10% to 15% of your earnings as savings. You can invest in a balanced fund comprising of bonds and equities.
If you wish to pay a lower cost, you can buy a term insurance that reduces the sum assured gradually over the term. (As your children grows older, you will need less coverage to take care of their needs. Also, you savings would have increased each year). The cost of a decreasing term insurance is less than 50% of the level term insurance (indicative $425 for male, $240 for female).
I will be approaching a few insurance companies to offer attractive term insurance rates to members of FISCA (i.e. the financial services consumer association to be launched soon).
27 comments:
$500K is the average amount of insurance needed by average Singaporeans to cover dependent income for family but unfortunately Singaporean are covered only $100K.This is the statistics of MAS.
This prompted a warning by MAS to the LIA to get the members to do something. MAS warned against form filling by insurance agents and conflict of interest. These are the reasons why Singaporean are under insured. Agents only sell whole life and endowment that give them high commission and ignore the interest of the clients and product pushers only fill up the forms. MAS further warned that if this phenomenon continues LIA should look into change of the remuneration, maybe to do away with commission and substitute a fairer way of rewarding agents for WORK or Advice given to prevent conflict of interest which is the cause of under insurance and mis-sellings and misrepresentation.
I hope it will happen soon to stop all the malpractices by insurance agents.
Please let us know when FISCA is ready.
I want to seek advice on my existing insurance policies and investment(loss) to see whether my agents have miss-sold and misrepresented me.
I have been reading about insurance in this blog and I feel my agents cheated on me and sold products that benefited them only. I also wonder whether I am under insured.
Hi Mr Tan, is the FISCA the insurance company that you are talking about last year?
I am still looking forward to the Wealth Accumulator plan and the decreasing term insurance. May I know when it will be "on sale"?
Thanks :)
If FISCA can review my existing insurance policies and uncover some mis-selling I will sue the insurance agents and company and complain to MAS.I will terminate them and get FISCA for advice.
Ntuc has good term products like i-term and family insurance but the agents are only interested to sell revosave, vivolife and now the sail.
These products fetch high commission but not the terms.
Somebody said that they are greedy and the clients' interest is the clients' business. Buyer beware.
I am not against buying Term and invest the rest. However, I must stressed that there is no model template for all individuals.
There are a few questions you need to ask yourself:
(a) Do you have the risk appetite for investment, even if it is a Balanced Fund with projected average returns of abt 6.7% p.a. over a long-term period?
(b) Do you have the discipline not to withdraw the money during good & bad times?
(c) Do you have the discipline to save 10 to 15% of your savings every month for long-term?
In fact, for most average income earners, esp those with family, they find it hard to buy term and invest the rest due to their budget constraint (e.g. $100 or $200/mth).
You also need to find out whether the Term Insurance does covered you for Critical Illness because undeniably the claim history has been on the rise.
1.59pm,
These are few answers to your questions that you have asked:
(a) Do you have the risk appetite for investment, even if it is a Balanced Fund with projected average returns of abt 6.7% p.a. over a long-term period?
Answer::investing on your own, risk appetite and time horizon is decided by YOU and NOT by the insurer. In whole life or endowment the risk and portfolio are decided by the insurer, not just for you but for everyone. It is a one size fits all investment.
You said individuals have unique needs but the insurer treats you like every one else. What have you to say?. Secondly, don't be fooled, insurers don't have special skill and they too are exposed to risk. They can lose and that is why they cut bonus. They are free to do whatever they want with your money. To avoid being blamed or kiasu they put your money in a very conservative portfolio and how much of your money? only 40% of your premium and that is why only after 20 years there is a TINY return ON your money.Before this, it is either loss or return OF your money.
You can construct a portfolio same like your insurer and you can have 100% of your money invested and also the maximum return and no need to "smoothen".
Smoothen means they give you a bit and save some for you next time when investment not good.Sounds idiotic , right?
Former actuary of NTUC said you are better off investing yourself
(b) Do you have the discipline not to withdraw the money during good & bad times?
Answer:: it depends on your goals whether you are driven by it or some other reasons. The product DOES NOT inculcate discipline. YOU and your goals are the discipline. If you have a financial coach, qualified financial planner, to help you all the way you will make it. But most got an insurance salesman and to shirk from his responsibility he tells that a whole life is forced saving.
Whoever you are, just watch the market and see how many lapses and terminations or surrenders. What discipline? The insurance salesman didn't help you with an emergency plan for a downturn like this.
(c) Do you have the discipline to save 10 to 15% of your savings every month for long-term?
Answer: The insurance agents are NOT trained to help you with a plan and to make see the importance of setting the 10 or 15% and therefore there is no committment. Same like (b) no planning, products are useless and like all possessions will be sold to tide over in bad time.
In conclusion: you have been listening to insurance agents' talk. They are interested to sell you something and therefore they will TOUT the product to you.They will extol the features and benefits of the products , sounds like buying a washing machine, right? They are NOT planning for you or advising you. They are not your financial coach but a salesman who will pitch to you whenever there is a new product or a promotion.
Obviously , you have not heard of term critical illness coverage. Your insurance agents won't recommend them to you. They are very GOOD to you but NOT for the insurance agents for obvious reason.
Term plans are FLEXIBLE and not rigid as you used the word 'template'.They are building blocks . You can throw them away when they have outlived their usefulness but not whole life or endowment which are actually a waste of your resources.
Come on, insurance agents depend on WLs and endowment for a living. They are NOT in this business to make sure you are financially healthy and meet your life goals.
What do they know about planning your goals? They are hardly qualified to talk about investment.
A no brainer way is to sell you whole life products and let go on auto pilot. Go and ask the baby boomers and ask them what happened to their retirement? Burned , because the agents told them they could rely on life insurance cash value to plan for their retirement. Their cash value suffered 50% short of the projected value.They are working overtime now, as toilet cleaners or behind KFC counter or kitchen.
Get a trustworthy adviser and COMPETENT one.
If the insurance agents don't give you the TRUTH of all things, can you trust him or her? Truth is the underlying of trust.
In fact, I am an Independent Financial Adviser (IFA) and a Certified Financial Planner. I think you should be an IFA for 3 months and try this out yourself to see whether you can convince those average income-earners ($2,400/mth) to do what you have just explained/said. If you can managed to convince at least 5 people and they did what you say, then I will salute you.
FYI, I just did a research on the performance (based on MSCI World Free and Global Bonds) of the balanced fund as well as very low risk and very high risk fund from year 1988 to 2008, the results are 4.7%p.a. (balanced), 5.6%p.a. (90% bonds/10 equities) & 3.8%p.a. (90% equities/10 bonds).
As for the Critical Illness coverage, I do know there are standalone, embedded and add-on ones but based on the Term Insurance of $538K and the premium shown as illustrated by TKL, it is very unlikely that it provides Critical Illness coverage.
I think you forgot that the company must also invest yuor money somewhere to provide the return you expect. Do insurance companies have superior or special assets to invest in and not available to others or you? In fact the companies are disadvantaged by the insurance acts to invest in certain asset classes and in conservative portfolio.That is why these companies start to restructure the bonus and avoid having high annual bonus but focus on special bonus which is non guaranteed but allows them to invest in at least 30% equities.
From your own findings you can see the allocation assets of diversified portfolios return good results in the last 20 years, and that includes 2008 which might have shaven off at least 35%.
I am surprised as a CFP you look rather shaky. As a IFA you have access to a slew of term products to address various areas of risk, from dependent income to disability
income and critical illness and medical.
$538K quoted by Mr. Tan is for dependent income and doesn't include CI. CI should be separate and which for a $200K can cost as low $30 a month. Can you get WL, CI of $200K for $30? Yes, but it depends on you. More often it is not that it is not available but the advsier is not willing or pretend they don't exist.Using terms gives value to your client and this is the kind of coverage your clients need, peace of mind.
To convince an average person to your views depends on your approach.Even though you are a CFP you seem to approach like a salesman. Remember you are to provide responsible and competent advice on a reasonable basis to your clients and that is embodied in section 27 of the FAA.
I guess all CFPs are not created equal.
I am not shaky but just want to reiterate that all individuals are different and we should advise and plan according to their needs, priorities, risk appetite and time horizon. We should not use "Buy Term and Invest the Rest" as the holistic approach. I do use this approach when I meet with HNW individuals and they do accept and agree to it. Even my spouse & I are covered for more than $2mil which are mostly Term Insurance and also invest the rest because I know the advantages of Dollar Cost Averaging and do research on funds but that does not mean that my approach is suitable for everyone. If so, Providends wouldnt have chosen the HNW individuals as their niche market. In addition, we will be easily sue for the now commonly used word "Mis-Selling". Most importantly, there must be a reasonable basis for any form of recommendation. What is most fearful is that most people tend to use their own opinion or being extreme in their ways, which should be avoided when providing advice.
Some clients do not deserve help as they are greedy and unappreciative. I have ever introduced the Living Refund that cost them very little. In fact, the commission I received cannot even cover the cost of transportation to and from the client's place. Yet they demand for free gifts and make me go down many times. I believed in giving good service but in the end with this kind of unappreciative clients they get a shark to attend to them then they kwai kwai bo pian but when you give them honest to goodness treatment they try to eat you.
I totally agree with you because I have experienced it personally. I remembered once I recommend an IncomeShield "As Charged" plan to a family who only have CPF-MediShield. I travelled all the way from Woodlands to Tampines to meet him. I showed him the product comparison of all the Shield Plans including CPF MediShield and explained the product features. Then he told me that he was comparing it with Aviva MyShield and asked me whether can have discount because for Aviva MyShield, he dun need to pay premiums for his two children until age 20. I told him cannot and then he said he will consider.
Later about 2 weeks later, I follow-up on him and he told me to come to his house again to explain to his spouse which I did. Then the same thing occured, she asked me if I give discount, then they will buy immediately. I told her really cannot and she was very upset. By then, another agent came and I have to leave.
The result of the whole episode took me 4 hours (2 hours each) of my time on Saturday which I can spend with my family and the travelling time & costs.
In fact, financial consultants/advisers are self-employed (i.e. no basic salary) and we are not compensated/subsidised by either the govt or company for the travelling costs by private car. We do have a family to take care of and are not running a charitable organisation.
However, I do have clients who are appreciative and understanding. They will come to my house or office when I meet them. In conclusion, there are many different kinds of people but we just do our part and do not be affected by them. Always look positive and there are still many people out there who need our services. :)
It must be recognised that rejecting a difficult cleint is a good finanical practice.
Financial planners should not give in lest he or she will seen as greedy too if not desperate for business. It is better to reject because acceding to the clients' demand or wish will distort or upset the reasonableness of your recommendation.
The client can use this and turn the table on you in the future. Client is in a favoured position in the court of law. The court will interpret consumers as 'vulnerable', helpless vis-a-vis the adviser.Financial planners can learn something from the lawyers. Discharging oneself from a case is the right thing to do if you find that you cannot proceed further without compromising ethics and good practice standards.It is better to lose case than being implicated for mis-selling in the future.
10.27am,
you should have given up on them after you were told that they would 'consider'. You should also have told them to take as long as they like and to call you when they were ready.Yes, only when ready or you can advise them to look for another salesman. If clients quiver over a tiny price difference it is a telltale sign they won't be good client.Write them off.
I sympathise with you. This is a lesson learned that you can choose your cleints. Clients are not always right.
True but the person was being referred by one of my clients. It lacks accountability and responsibility if I do not follow-up. In fact, everytime a person told me he/she wants to consider, I will always say this "It is ok if you buy from others but most importantly you must consider it seriously." In fact, some people have taken me for a ride when I helped them to do a comprehensive financial planning which includes consolidation of insurance policies (it takes a few days to complete one depending on its complexity) without charging a fee, though felt frustrated & unjust, I keep reminding myself that it is a service to God. It may sound silly but my genuineness and sincerity have being felt by my clients over the past 7 years in this industry and that's why they keep on referring without having the need to look for new ones. :)
There are customers who want free things. These are usually customers who are ignorant but try to appear savvy. Let them be fleeced by the own kind, the greedy agents who are as ignorant as they are.
6.14pm,
don't be like ntuc agents selling stainless steel pots to old and vulnerable folks. They promise magical benefits but actually the pots drain the folks slowly but surely of their hard earned money and life saving.
Imagine you are asked to use your retirement fund which you just withdrew from your CPF to pay for the regular premium for revosave to earn 'BETTER THAN THE BANK RATE'
instead of investing in Growth earn 4% like REX did.
Is it better to earn 4% or 1.5%?
Oh , the creative super duper agents will tell you 1.5% got liquidity, got insurance cover, got options to reinvest to earn 3.5%. 3.5%? in what? guaranteed?
Growth, no all these.
Does it sound like the SPEAR AND SHIELD SALESMAN' ?
You can actually sue the agent for misusing and misrepresenting the word 'liquidity'. It is exactly like the stainless steel pot and like the revosave ad says 'waht money can buy', 4 pots to last a life time but revosave to pay a life time.
A few days ago it was reported that ntuc came #1 in last 2 quarters. In that period other companies stood still to let ntuc overtake them..and the ceo suddenly could talk and talk loudly and he attributed to his so and so smart strategies. He didn't realise that the others gave chance to let him win since he wanted to be #1 so badly. Unfortunately ntuc still smells the backside of the 2 infront.
This year , let 's see, especailly comes April when AGM is held. Let's hear what cock and bull story from him about the bonus, is it 1% or 45%?
No #1 overall, never mind, at least got #1 in last two quarters. No fish got prawns also okay.
Why you think ntuc did well?
Pru, GE, AIA give chance, lah. they all stop to wait for ntuc. The ceo so desparate for #1, lose money never mind so long can get #1. Pay more to agents so they can chase after the carrots like the rabbits.This is how agents work. greedy? very greedy.
11.50pm & 8.50am.
Both of u have been bad mouthing NTUC Income and the CEO. Have they done you any injustice ? Why are u always targeting at them ? Before you says their policies and agents are bad, do u have other policies with other insurers ? Are their policies and agents fare better than them.? For those out there ,touch your heart and soul ,is it fair?
Every CEO of any company would want to be number 1 and to say that other insurers are giving NTUC Income a chance to be no#1 leave to show that you people are naive and without any direction.
Recent survey shows a majority of the public have chose NTUC Income as their trusted and prefered insurer.They cant be wrong...
If consumers have chosen ntuc as the trusted insurer why is ntuc NOT #1?
Why ntuc is still NOT the largest?
From your writing ntuc has agents like you, ill qualified, ill competent.Why aren't agents flocking to join ntuc?
2 facts..... the products are not value for money. Cost has gone up because of the greed and extravagance of the management and agents.....agents are still not competent and they are only salesmen at the best, majority are product pushers often miss-sell and misprepresent.
Unfortunately the public still think ntuc is still the same like it was under Mr. Tan Kin Lian. It took Mr. Tan 35 years to build till it is to day, the strong brand name, cooperative and value for money.The public don't realise that that the products are NOT the same any more . They are expensive, low protection and low return and worse, risk has gone up since the restructuring of the bonus. But the public are unaware of these... The company is smart, the ceo is smart using the agents to push these products to the trusting consumers by giving them incentives and high commission to feed their greed. The agents are willing to do anything, ethical or not they will just sell. What do the agents know about financial planning, about adding values to their clients? For agents , it is about adding to their own pockets by selling high commission products to the customers, to qualify for mdrt or incentive trips.
Soon the public will find out and many have realised this. Wait till the FISCA is set up and these agents' misdeeds will be exposed and they will be punished. Many are waiting to have their existing policies to be reviewed by FISCA for msi-selling and misrepresentation.Pray hard that your customers don't go for review because your 'crimes' will be exposed.
Jay Jay
13,000 inusrance agent can't be wrong too. They choose other companies. The policyholders can't be wrong too.They choose other insurers too.
ntuc has gone to the dogs. it is no longer a cooperative. The products tell you they are not. The products are meant to line the pockets of their agents and not as financial planning products to help the consumers achieve their goals. ..Where got such product? They are meant to create super duper agents to dupe customers into buying useless products.
vote the ceo out this AgM
ntuc has a social purpose...its purpose to soclialise by wining and dining at posh places and squander the life fund
ASk the ceo of ntuc to buy REVOSAVE for himself and his family members if he HONESTLy believes that this is a good product for everyone, including the old folks.
Better still, ask him to buy revosave and use the cashbacks to pay for a vivolife since he has allowed his salesmen to package them.
If he doesn't itmmeans it is true that it is rotten product. Let him announce it in the press to show he puts his money where his big mouth is and not putting his foot in somebody else's mouth.
Thank you for sharing such great information.
It has help me in finding out more detail aboutfamily protection insurance
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