Tan Kin Lian's Blog: Correct approach to select an insurance policy

Monday, June 22, 2009

Correct approach to select an insurance policy

Many people think that a good insurance policy provides the widest cover. This is not the correct approach.

A good insurance policy meets the following criteria:
a) Provides cover that is relevant to the needs
b) The cover is clearly defined (i.e. not ambigious)
c) The premium is computed fairly.

The consumer should avoid a policy that provides wide cover that is irrelevant to the needs, have a negligible chance of occurence, and are ambigiously defined. Many of the coverages provided under a critical illness policy fall into this category.

To ensure that the premium is computed fairly, the ratio of claims to premium should be at least 60% in the case of a policy that covers the risk and does not accummulate any savings. If the ratio is less than 60%, the premium is overcharged, and gives poor value to the consumer.

Many travel insurance policies have a claim ratio of less than 30%. A large part of the premium goes to commission, expenses and profit to the insurance company. Many Shield plans also have claims ratio of less than 50%.

Motor insurance has a claim ratio of more than 70%, due to intensive competition. It gives good value to the consumer, except that the claims are inflated due to incompetency in claims control.

When you buy an insurance policy, make sure that the coverage is clearly defined and that the claim ratio is more than 60% of the premiums.

Tan Kin Lian

6 comments:

Anonymous said...: The BEST insurance is an insurance that covers a SPECIFIC need and has lowest cost with the highest protection. This is the primary objective of insurance.
Not one that spreads thin and has dubious coverage that has little chance of happening.Today's life insurance has many features under the sun; covers multiple critical illnesses or cancers that medically won't happen. They even cover retrenchment but with a lot of buts.It is tantamount to cheating and todays' life insurance products are exactly doing that because the kiasu consumers are kiasi and easily fall for that with hard pushing by greedy insurance agents who have the wicked heart to sell them to their so called friends.These agents are fiends .
Insurance companies are also running out of ideas. They package these useless features to hide the rotten return, rotten protection, and high cost and market them as 'revolutionary' products.As a result insurance agents are pushing and peddling products and NOT planning solutions to meet the needs of the clients because none of these rotten products can meet the needs efficiently and adequately. The rotten features and multiple benefits are added to justify the high cost and rotten return.
If a company can design a product with high return of 5%, with high protection at a low premium, with LOW risk and BETTER than the PAST products then it is a revolutionary product. It is possible? No, insurance product is basically about cost and return. With greedy agents and ceo desiring high commission and salary and low investment return how to have a good product. The only way is to bullshit the consumers by covering up with new wrappings and use unethical insurance agents to lie, con, confuse and cheat their ever trusting customers.This is the only way.
They cannot come out a new 'TV' ten times lower than the price 20 years ago, can they? This is revolutionary. But there are insurance companies that make this claim.Is it true? Is it not cheating?; June 22, 2009 8:06 PM
Anonymous said...: Nowadays the whole life products are like scams. They are bundled with a lot of rubbish to look like they are offering many benefits. Don't be fooled. You are the losers, the suckers. Don't be caught for life.This is the intended trap by insurers. They know many of you consumers terminate sooner or later for myriads of reasons. The insurers stand to make a lot of this orphan money which they keep for themselves and will not be distributed to other policyholders. This orphan money can be source of salary increase for themselves , the ceo, the fine winning and dinning, golden taps or chairs.
Another scam of whole life is that they tell you it is forced saving. The truth is you are saving for them, they lock you up for a long time. Imagine when you need money, can you take it out? If you terminate you lose all. So they tell you don't terminate you'll lose your insurance coverage borrow better or make a loan from YOUR cash value. Oh my goodness!!! the cash value is MY MONEY and I have to borrow. What kind of joke is this? This is the trap that the insurers set for you from the start with the collusion of the despicable insurance agents.
Did you know that you have to pay 5.5% to 8% interest to borrow your OWN MONEY? And how much do they pay to your policy as return? Less than 3% provided you keep for 30 years!!It means you are lagging behind 2% to 5%, ie. your policy is returning -2% to -5% rate of return in favour of the insurers after you made a loan.What if you borrow before your policy breaks even? Your policy is going backward in return. Whatever premium you pay goes to pay the backlog in interest which gets bigger and bigger over time.
Another truth is it is a scam that for the insurers it is a GUARANTEED HIGH RETURN for them, risk free. It becomes the reverse. The insurers invest in you , no difference from the bank credit card if you choose to roll over your unpaid spending.
This is the whole life meant as forced saving plan, they tell you, for retirement..The greedy unscrupulous insurance agents tout it as a disciplined saving plan for retirement but unknown to you , you are being set up by the insurers with the help of your so called trusted beloved agents who put his interest, the commission first.I wonder whose retirement plan it eventually becomes.
Hope consumers can see through the ruse, a collaboration between the insurers and the insurance agents without you even know it. What a clever legalised scam with the blessing from MAS too.

The Watchman; June 22, 2009 11:37 PM
Anonymous said...: In this world, many people talk about packaging which attracts people easily. Who cares what is inside?

starlight; June 23, 2009 7:12 AM
Anonymous said...: Dear Mr Tan,

How can we find out what is the claim ration of a particular policy?; June 23, 2009 10:55 AM
Anonymous said...: Want to sue your insurance agents for mis-selling, for conflict of insurance, for inappropriate advice, for recommendation not on reasonable basis and worry about the cost? Here is the good news!!!!!!!
Learn about what is After The Event(ATE) insurance check the link below.
http://www.temple-legal.co.uk/products/after-the-event.html

I hope FISCA can avail such a service to members and the public who are aggrieved by insurance agents, RMs and financial advisers.
Lawyers who are willing to provide this service can look forward to a very lucrative business. They will be very busy because almost all insurance agents are guilty of breaching section 27 of FAA and unethical and illegal practices.
Widows and deceased's family need not be deprived of adequate financial legacy because of insurance agents' greed, unscrupulous, incompetence and cheating.Their plight will be alleviated.

The Watchman; June 23, 2009 2:13 PM
Anonymous said...: The best guideline is to avoid the following products.
1. whole life or its variations like limited pay whole life or universal whole life
2.endowment and its corruption like anticipated endowment and more corruption like cash backs, coupons , dividends or refunds which are anticipated endowment in disguise.
3.regular ILPs or its variation like variable whole life or variable universal whole life like Vista and its likes.
4.Recently there are few term critical illness products which supposedly pay for multiple CIs or partial payment for first stage cancer. These products are more like LPPL products. The multiple illness one is a rubbish. Doctors consulted said VERY RARELY that they happen. So you see 'sure makan' for the insurer.For the first stage one, it is matter of time, so pay 25% is an advancement.
What is their real protection value? it is the critical illness cover only and the rest thrown in to help insurance agents to con and bullshit you and to make you 'shiok'
Remember your PRIMARY needs and go straight into it without the dilution and all the distractions like retrenchment , backside pain extra benefits, triple coverage for accident and the crap.These craps are used to hide the truths which are usually never used by agents to promote instead they promote the craps.The craps are their selling points.
Don't be fooled. Don't trust your insurance agents. They are NOT as honest as you think.They are NOT as qualified as you think.
THEY ARE JUST SALESMEN WHOSE ONLY INTEREST IS TO DUMP SOME PRODUCTS
ON YOU TO MAKE HUGE COMMISSION.

The Terminator III; June 25, 2009 8:55 PM