Tan Kin Lian's Blog: It is easy to be cheated (11) - Life policy with annual cash payment

Thursday, June 11, 2009

It is easy to be cheated (11) - Life policy with annual cash payment

In recent years, many life insurance companies have introduced a life policy with annual recurring payment. The agents sold this product actively and earned high commisison. The policy gives a very low yield to the policyholder. and is worse than an endowment policy. It is easy for the agent to sell the attraction of the annual cash payment to a consumer who is not aware that that he or she is actually taking back a part of the premium.

A endowment policy already gives a poor yield, due to the high charges. The guaranteed return is about 2% per annum and the non-guaranteed bonus may add another 1% or 2% to the yield.

The insurance company design the annual cash payment by increasing the premium rate on the underlhying whole life or endowment policy and use the increased premium, less expenses, to make the cash payment to the policy.

Take this example. The endowment policy requires an annual premium of (say) $3,000. To make the annual cash payment, the insurance company increases the premium by (say) $1.000 and makes a cash payment of $900 to the policyholder from the second year. There is no payment for the first year, as the additonal premium is used to pay commission to the agent.

Why should a policyholder take a polcy that requires an additional premuim of $1,000 and pays back only $900 a year.? Surely, it is more sensible for the policyholder to keep the $1,000 in the bank account, rather than give it to the insurance company and receive back only $900?

This type of policy does not make sense to the policyholder, but the insurance agent loves to sell it, as they can earn additional commission on the additional premium.

The yield on this type of policy is lower than for an endowment policy. It could reduce the yield (which is already low) by another 1%. I undersand that most of these type of annul cash payment policy gives a guaranteed yield of only 1%.

The insurance agent is highly trained to sell this type of product to the customer, even though it gives a poor yield. Many of the customers are not aware about the true nature of the product and can be easily taken for a ride. How sad!

Tan Kin Lian

13 comments:

Anonymous said...: There are many of this type of products in the market. Despite its very poor return yet some companies are selling like hot cakes.
Why?
First,very good reason is customers are 'greedy'. They want quick cash. They have no idea quick cash means very low return. In fact the customers are better off putting in FD without the long lock in and committment. Too bad customers are suckers.Why do they buy this product? These products don't add value to the customers.
Secondly, greedy agents with unscrupulous companies are exploiting the ignorant and trusting customers. The agents don't care but fleece even their own friends.
I know ntuc has a product called revosave. It is very despicable product that does 'don't know waht'.Some unethical agents will go further to churn this product by bullshitting the customers with this buy one get one free package.
This is most unethical because they don't value and no enhancement of values to the customers and these agents without conscience would stoop to doing such thing to their fellow human beings because of high commission. MAS must be informed about this practice. The company is doing nothing and in fact encourage the agents because of sales. Someone must report to MAS.Commission is root of all evils and the agents are the doers of this evil.

Disgusted; June 11, 2009 2:22 PM
Anonymous said...: These cash back products are anticipated endowment disguised. Indeed they are disgusting products that prey on unwary aunties and uncles. Old folks were also victims of these products which are passed off as annuity.Imagine how the mind can be become wicked when it comes to money and commission.
Folks, you are getting back your own money. Imagine after the second year, you pay with one hand the premium and you receive the cashaback with the other hand. And what options? Rubbish!!!Instead of all of your money you are now putting part of your money into the options.. It is madness. Don't you see the trick? I guess customers are being put under some kind of spell or illusion.
You see for yourself, these insurance agents would stoop to anything, do anyhting, say anything, cheat because of the commission. The customers' interest take a back seat. No conscience any more. Retribution will surely follow these insurance agents for their wickedness.; June 11, 2009 8:48 PM
Anonymous said...: I am convinced now that 80% of the human race are stupid. This is the only reason why in spite of all the warnings they still go and buy. A fool and his money is soon parted.; June 12, 2009 12:57 PM
Anonymous said...: A sucker is born every second fast enough to provide preys for the insurance agents. Indeed a sucker and his or her money is soon parted.; June 12, 2009 7:23 PM
Anonymous said...: These cashback products in the market give yield between 1.2 to 1.5%. The unethical agents pitch these product as better than bank FDs.They are not wrong but FDs are not the benchmarks. The benchmark should be the inflation (3%). Whatever one invests in it is to beat or equal the inflation otherwise it is a loss. It shows insurance agents are not sincere and care for their customers. They just want to make a sale disregard their customers' interest.They are not giving the best to the customers.Even selling them a pure endowment is better than these cashbacks. These cashbacks are real scams.I find the insurance agents despicable and evil.

The Watchman; June 12, 2009 7:56 PM
Anonymous said...: The insurance agents are 'earning' cursed or blood money from these products. No good will come to them. it is as good as ill gotten money from the poor ignorant folks. Stop robbing your fellow human beings lest retribution comes to you.; June 12, 2009 10:07 PM
Anonymous said...: A more interesting question would be... So what is the alternative?

We still need something.; June 13, 2009 6:14 AM
Concerned said...: Insurance companies can market these poorly yield policies and the people still buy them is because the interest rate on the savings and fixed deposit are miserly low. Because of this low interest rate, people buy lousy insurance policies, minibonds, pinnacles notes, high notes, all sorts of structured deposits to enhance their yields. Unfortunately, the FIs took advantage of this situation and customers are taken for a ride. Why are bank interest rate so low here??? It is because our neighbouringly countries, like Indonesia, Thailand, Malaysians, China, India, they have very rich citizens who like to deposit their excess cash, unaccounted gains here. The S$ is always appreciating against their home currencies over time and the resulting foreign exchange gains will more than compensate for their low yields they obtained from the deposit rate here. For us, we do not have such advantage.; June 13, 2009 2:57 PM
zhummmeng said...: Invest regularly on your own or get a qualified adviser to help you with a portfolio that suits you.
Don't let the term 'invest' worry you. By not doing anything to your money is investing in itself.The word 'invest' seems to have a scary connotation. No, putting in the FDs is investing'; putting under your bed is also investing; buying a whole life policy is regular investing. Get the meaning right so that you can make a more positive sense and expectation.
If you understand what the insurers
do to your money then you will realise that investing on your own is better.They are cheats. How? If they make 10% they let you have up to projection, ie, adding 2% more to your cash value. What happened to the 8%? All we know is that they keep it for smoothing. All 8%? No , heaven knows. If you invest and get 10% it is all yours to keep but of course if you lose 2% it is yours too but you still have 8%(10-2) and it is better than the miserable projected return .
As said , don't engage an insurance agent to do this for you.
They are salesmen NOT qualified in finance and NOT even in insurance.
Get a qualified adviser or planner with right TERTIARY FINANCIAL qualifications as your coach or adviser or planner.; June 13, 2009 3:09 PM
Anonymous said...: No pain no gain. If you don't your money is a sitting duck to erosion by inflation.Sure loss.Taking risk doesn't mean loss . Yo can lower to as low as what your insurance company
takes and still get better than what they give you.; June 13, 2009 4:51 PM
Anonymous said...: Is "Get a qualified adviser or planner with right TERTIARY FINANCIAL qualifications as your coach or adviser or planner." a sure way to financial independence?; June 15, 2009 9:20 AM
Anonymous said...: June 15, 2009 9:20 AM,

you have much better chance although not gauranteed.Not getting one is doomed from the start.It is like getting a plumber or toilet cleaner to advise you on finance if it is an insurance agent.

The Watchman; June 15, 2009 6:05 PM
Anonymous said...: just buy smrt or sph or singpost or DBS stocks
regular dividends of 5-8% for u ...if they fail singapore fail..got sing dollars also no use..; August 17, 2009 12:50 PM