Sunday, March 15, 2009

Life insurance quotation gives misleading information

A policyholder bought a 21 year anticipated endowment policy with an annual payment of $14,500. The quotation clearly stated that a sumof $20,000 is paid every 3 years and the payment on maturity is $80,000 plus RB/SB of $264,800 giving a total payout of $344,800.  There was no explanation about the RB/SB and that it is not guaranteed. The policyholder was misled by the agent into believing that the payment is guaranteed.

The policy is now approaching the maturity date. The policyholder is now told that the actual maturity payout is only $232,400, comprising of $80,000 plus RB/SB of 152,400 (i.e. decrease of $102,400) from the quotation. The policyholder was shocked to see this amount of reduction.

I advised the policyholder to file a complaint to FIDREC and, if not resolved, to take a legal case.

MY VIEW: 
Now I know why this insurance company was so successful in its sales over the past years. The agents were able to sell large policies by providing misleading quotations to the customers. Most of these customers are not well educated and trusted the verbal explanation of the agents. When they learned the truth years later, it was too late. 

The root cause of this problem is the excessive commission paid to the agent and the poor supervision of the insurance company on the conduct of their agents. I hope that this unhealthy practice is properly addressed.

9 comments:

Unknown said...

It is not uncommon for insurance agents to use projected figure as selling feature and in many cases willfully given the impression as guaranteed.This is how consumers are sold on whole life and endowment products. There is no truthfulness and honesty.
I know a lot of consumers are unhappy when they see maturity value lesser than projected and difference is substantial.Most of the time they just grumble and are afraid to take legal actions against the company and the agent.
In my review for customers I would urge them to complain to the company for refund and lodge with MAS for unethical selling .In a few cases I helped them to lodge with MAS as the mis-selling was so glaringly obvious.
For your case if you have not recieved the payouts or cashbacks the maturity value should be at least 4% compounded but your maturity value is below your total premium paid. This is outrageous .
Something is very wrong.
Consumers must understand that insurance whole life and endowment products have risk. In the past the risk was lower but NOW the risk has gone up very much and the return is also lower.These products are unreliable anymore as saving or protection instruments. In fact they are becoming scam products and the company pays high commission to incentivize the insurance agents to lie, miss-sell, misrepresent and cover up the flaws.Meantime, the company closes their 2 eyes if there is no complaint.
$14500 is a lot of money and if it compounded for 21 years at 4% the maturity should be $463000. Maturity value of $344800(projected) gives only a return rate of 1.22%, very miserable. $232400 is even worse , a great loss. You are robbed!!!!
If you are using wholelife or endowment as saving plans they must at least give a return of 4% with moderate risk otherwise don't. 4% is only good enough to protect your value of money because over long term inflation rate is 3.5% to 4%.
Consider all these when investing. Buy term is the best and invest on your own with the help of a QUALIFIED and HONEST adviser. I stress the word "qualified" because 90% of the insurance agents out there are NOT qualified as financial planning advisers, they are salesmen ans women out to make fast buck. Those who call themselves mdrt, cot or tot belong to this group. So, be careful when dealing with them.They are successful, yes, successful in squeezing and robbing your money with rubbish products. Successful in helping you? NO.

Anonymous said...

That's why consumers must now understand CLEARLY the meaning of PROJECTED. It can be as good as zero or even negative!

Applies to investment and insurance products. No point expecting MAS to step in. Do it yourself, that is, avoid anything that says projected. Make it a Golden rule.

zhummmeng said...

Today , there are many of these products flooding the market because they appeal to the aunties who want "to see cash quickly" and who have no idea that this kind of products are useless as saving plan.
The sellers on the other hand are quick to capitalize on this stupid 'need' and the confusion of consumers. Instead of helping the cleints with their NEEDS the agents pander to their wants. Often wants like this can be easily met in less expensive way.
Example, keep under your bed or in the toilet, it is still better than putting into products like Prucash or Revosave from ntuc.This is real LIQUIDITY.(without loss)
Od course, for short term needs it is better to keep in FD as it is more liquid and no lock in risk. For longer term needs and depending on the goals, it is better to put in something which works harder than inflation, at least 3% above it, then there is real growth.
Putting into Prucash or Revosave is guaranteed loss even you hold it to maturity. Of course if it is prematurely surrendered the loss is enormous .
I don't understand why dubious products like them could be sold by agents who are supposed to have the interest of their clients in mind. Instead it is the insurance agents' interest to push these products using false arguments and deceits to trap the clients.
Even the products offer options to "reinvest" the end result is still very inferior. Like the posting above about leaving the cashbacks with the company earning 3%.There is no statement in the policy document that says it is guaranteed
and what and where it is invested in.
Or option to reinvest without the sales charge.... but wait a minute.....to reinvest with half of your premium..this is ridiculous
If i have that intention I might as well invest directly with ALL my premium even being charged the sales charge i will still get much much and superior return.
So you see these products are to confuse you and with agents' trained to distract you and lie to you. The unwary consumers are at the mercy of the insurance salesmen and women who push products instead of finding your needs first.
Fortunately, MAS has realised that enough is enough and it is pay back time for the insurance agents ans other salesmen disguised as consultants.
Lawyers reading this thread, there is great opportunity to make money from the agents by helping the aggrieved consumers to seek redress. Miss-selling and misrepresentation have been committed blatantly and is still on the rise.
Don't know where to start? One tip , go for the so called achievers, the mdrt, cot and tot, you sure to nail them for mis-selling and misrepresentation because their every case sold is using this means.Only high commission products can earn them enough to qualify for these dubious awards.
Or visit the funeral wake you sure to hear from the widow that deceased didn't leave enough for her and her children to live on except for the expenses for his own burial.
This is the scene or landscape of the financial industry where it is meant to enrich the sellers or the stealers of dreams and not the buyers

Yan said...

It's time for Mr Tan to stand up and wipe out this unhealthy practice.

Come to CCK. i ll vote for u.

on second thoughts, go somewhere with the highest chance of winning, i ll use my network to ask all my frens and ppl i know to vote for u.

So happy when i read "wan bao" tonight that you are considering to stand for election!

CHEERS!

be noble. we need more ppl like you.

Anonymous said...

Recently, i was accosted by an insurance agent from ntuc at a roadshow. She insisted to show me the product, revosave which is an anticipated endowment by another name.I asked for the return and she told me it was better than the bank interest rate.She was not specific. She was not wrong to say that her product return was better the bank if she could show me the quotation but she could not calculate.I also asked her whether, other than the bank, was there any risk free rate that the product beat? She could not except to bash her competitors.
Consumers must understand that the bank rate is not a benchmark.
It is misleading to compare to the bank and many uncles and aunties fall for it. The return of this revosave or any cashback products,is a sure die even if you keep till maturity.
The reinvestment options are used to show that the miserable return of the cashbacks can be improved but the question is how much MORE RISK the cleint has to take but the agents tout them as if they are gauranteed, like the 3.5% leaving with company. I asked if she could guarantee that the 3.5% was a guaranteed rate I would buy. She could not.
You see, non disclosure,misleading info, incompetence, suppression of material info were her selling tactics.
Consumers who could not ask questions like the aunties and uncles would have been convinced and would mistake the 5% cashback as the return of the product.This would be another minibond case.
The regulator must step in to stop the misleading advertising posters used by these agents and also ban roadshows. They are a menace and there bound to be unwary passer-bys suckers inevitably who would fall victim to this product and the salesmen peddling products similar to the koyok salesmen at pasar malam.
I wonder how many terminations and lapses have already happened in this economic downturn when suddenly these buyers woke up that they were misled into buying a product they don't need or can't afford.
It is definitely a useless product and doesn't help you finanically instead it shackles you for a very long time.

Concerned observer

Leong Kee Ming Lionel said...

Hello all. I'm new in the financial planning industry. I know a lot of you would equate this to the insurance industry. However, I beg to differ. I joined this industry to try to make a difference. Yes, i am affiliated with an insurance company. Does that mean that i will not do my best to serve the interest of my clients 1st?

In this day and age, i feel taken aback that people equate financial advisers with insurance agents. Looking at the situation, perhaps it's not difficult to understand. In the perfect world, insurance should be one of the tools of financial planning. In our current context, how would an FP feed himself/herself except getting commissions from selling products. Until the day comes when the average Singaporean is willing to pay the FP as he would pay other
professionals (eg. doctors, lawyers) for advice, how will there ever be trained and qualified professionals in this field?

You know, despite being new and all (perhaps because of this), i feel that the commissions that FPs earn not that significant at all. It only seems a lot if you look at the annual premium. Take a step back and look from it afar. Let's say we're talking about a whole life policy. The client is 30 years of age and pays for it till 65 years. That's 35 years of premiums. How much does it goes to the FP? That's about 1.5 years or 4.2% (please note that this is only a rough guide and is not the basis for all companies). This only for a life policy. How about for other plans? Some at pegged at much lower than that.

Here's more food for thought. Have you actually considered the amount of time and effort an FP puts in? For most, there is no clear division of weekdays and weekends. How about the emotional side of things? This is a rejection business.

I respect all your viewpoints. Just be clear about what you are arguing about. Don't confuse the remuneration of FPs with what certain product peddlers are doing.

There are bad apples in every industry. Don't take that as a representation of the whole industry.

zhummmeng said...

If you are planning for your client, fine, if the products or solutions happen to be whole life or endowment and they are very suitable products that can address the clients' needs adequately wihtout draining and depriving his other needs. The issue is NOT the commission if your advsiory works justify it.
Having said that how many of the insurance agents do financial planning and recommend on reasonable basis?
How many of your clients can afford whole life products FULLY and without having to sacrifice their equally urgent needs. How many can afford them?
Let me tell these WL products are for the RICH or high income earners who can SPLURGE on them.
The problem is these miserable products are sold to people who can't afford and whose money could be put to better use to help them meet their financial needs FULLY. Instead insurance agents sell them like snake oil or one size fits all products. WL as saving or protection plan is rotten, expensive and poor return.The truth is it is the commission the agents are after and not the needs of the their clients.
Anyway, let us not argue. The writing is on the wall. MAS's consultation paper will sound the death knell for product pushers and those insurance agents who masquerade as financial planners or consultants. Their demise is as sure as the sun rises.

Leong Kee Ming Lionel said...

Hi Zhummmeng, I agree with your post in that some people are pushing products to earn comms. Every product serves a particular need. I too hate the one size fits all solution that some FPs dole out. Especially if it hurts the lower income group.

On another note, i had the chance to look through a client's portfolio today. In it i found a Limited Pay Wholelife insurance with a coverage of $10K. What kind of advice did his "FP" give him? Basically a "useless" policy for someone of his pay grade.

I too am looking forward to the day when the industry will be revamped. Though we may not agree on how it should be done, at least we can agree that product pushers should go.

Cheers :)

zhummmeng said...

This is the story of a former insurance agent.

"When I was young and less wise, I became an insurance agent for a major insurance company.In my second month I sold a whole life policy to a young couple in their 20s with 2 young children.The premium was high but the sum assured was only $30,000. Three years later the husband, the insured, died in a car accident, leaving the kids with no father and the family without an income.
When the wife made the claim she received $30000+. The money barely covered the funeral expenses and a few months of living expenses.
I realized that had I done what was good for this family instead of what was good for me and the insurance company I would have sold the family a term policy. For the same premium I could have sold the family about $1 million of life insurance without the rubbish saving plan and the claim proceed would have taken care of the family and children for the next 20 years until the children became financially independent.
This experience shook me emotionally so badly that i quit the life insurance business forever. I honestly felt because of my knowledge and the lack of it that I stripped this family of the protection and the help they really needed."

This is the scene of the insurance industry today. The agents don't care. They only sell wholelife that gives high commission and the company encourages it because of the stream of premium that it will be receiving. Most of the insurance agents lack the knowledge
in insurance planning and many pretend and think that their sincerity or caringness will replace competence and honesty. This is bullshit and hippocrates and wickedness. Imagine a "surgeon"
or a butcher told you that he learned his cutting or surgery knowledge from the internet and he would like to perform an operation on you. Many insurance agents are like that. They can sell and they think insurance is pushing and outwitting a customer to buy product. They are no different from the koyok salesmen at Albert Street or pasar malam.
I won't trust and respect those agents who qualify for mdrt or cot.
Their production is questionable. They are at best salesmen and women who managed to con a lot of their customers into buying whole life products so that they can qaulify for mdrt and cot.
How many people have they helped?
Not qualified and competent, how to help? Please, someone tell these agents without conscience to repent .

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