I AGREE with the views expressed by Mr Larry Haverkamp in his letter last Thursday, 'Policyholders underpaid?'.
Many life insurance policies taken today require more than 15 years to 'break even'. This is the point where the cash value of the policy is more than the premiums that were paid over the years.
During this period, the insurance company must have earned more than 40 per cent on the premiums that have been invested. As an actuary, I know that the real cost of providing life insurance cover is about one-quarter of the gain. The remaining three-quarters are used to pay the agent's commission and expenses, or retained as orphaned money, as pointed out by Mr Haverkamp.
If the orphaned money is distributed to the policyholder, as suggested by Mr Haverkamp, the return would at least have been slightly better.
In recent years, consumers have been given a poor deal on their long-term savings in life insurance policies. A careful study of the Benefit Illustration will probably bring out this point. But the Benefit Illustration is difficult for consumers to understand and needs to be explained by an insurance adviser, who tends to skim over the negative points.
This is similar to the situation with the prospectuses issued for Minibonds and other credit-linked notes.
If consumers are given a poor return on their long-term savings in life insurance policies and other financial products, and in many cases they actually get a negative return, is it a wonder why many Singaporeans do not have sufficient savings for retirement after many years of hard work, thrift and savings?
I call on life insurance companies and financial institutions to reconsider their roles and responsibilities to provide a fair deal to consumers, as they strive to make profits for their shareholders. I hope the Government will also review this unsatisfactory situation in Singapore.
Tan Kin Lian
9 comments:
I second this. Our parents are working so hard and for so long and yet at the end of the day what they actually save is miserable.. I feel that they are taken advantage of and entice into investing in so called 'long-term saving' products due to their lack of financial knowledge.. its sad but true..
Why?
insurance agents want high commission and only sell products with high commission so companies die die must have whole life and endowment to cater to these greedy agents.They don't know how to recommend term.
Has cost come down? Has salary come down or keep going up.Also ceo wants high salary to keep up their title . In order to to keep his high salary and also knows that the greedy agents ONLY want to sell products with high commission they work hand in glove to con the customers to pay themselves.
So how to get high return with spiralling cost and low interest rate and investemnt return?
You will be shocked to know the insurance companies only prefer par products because the premium collected can be manipulated over long term. No transparency, you don't know what they do with your money like the orphaned money.
I suspect it is source of fund to pay themselves over the long term or this fund is used to cover up some gaps in the earnings.
If you find your policies have no hope of meeting your needs in the future it is better to cut off the sore thumb and quickly get into investing yourself. Get out of whoel life and endwoment products they are not good for you consumers , either for protection or for saving.
They are good for the CEO and his greedy agents.
Thank you Mr Tan for speaking out for us. I have lost much trust of the insurance products with their poor returns and dispute over coverage when illness occured, as reported in many recent cases. I agree NTUC Income were much better for customers when under your charge previously.
During Mr. Tan 's tenor the return rate was good , the protection cost was affordable.
Now the new management is using these rates as if they are the ones who achieved them. It is akin to using Mr. Tan's backside skin for their faical skin.
The truth is the return of today's product is miserable. You get less than 3% after keeping for 30 years. It is high risk if you use bond risk measure for this kind of term.
Therefore it is no surprise that their products have a lot of rubbish to hide the rotten truth.
The sooner consumers come to term with risk and invest in equity the better. There is no instrument under the sun that can beat inflation other than equity.Beating inflation then there is growth.
I agree with above post.The so called well kept secret was actually Mr. TanKL's but someone shamelessly claimed his. Worse, knowing that this rate of return will not be repeated but by advertising it , the company is misleading the public that its products are able and can acheive such returns in the future. This is misrepresnting the fact and MAS must intervene to stop such marketing practice.
It is unethical.
Yes, I agree with Mr Tan that the Government MUST review this kind of unfair trading?
Is there any urgency? Any benefit to the government to do so now? YES. If government can review the rule and regulation to ensure transparency with benefit equally and fairly distribute to the policy holders, agents and insurance company, more people will take up the insurances, government may spend less time and less taxpayer money to take care of individual healthcare issues, elderly issues as we knew Singapore is leading to aging society soon. Government should spend more towards how to survive thru in coming aging population….
Those who supported/voted for the government and was part of the workforce few decade ago to grow the economic and is now left alone in the rental flat, homeless and abandoned by their family due to old, jobless, many healthcare problem…. in the end, the government still use taxpayer money to help these group of elderly (which population is increasing….) Or is the government is kind enough to create a special fund for all elderly group (like workfare income supplement, or Singapore shares, etc…) to thank for their past contribution to Singapore economic??
Anyway, the government/ministers still can earn million if everyone is happy with their policies... is a win/win situation….
Now I only go for terms insurance and hospitalisation/critical illnesses related insurance. Investment linked products or others, not a chance!
And don't be sweet talked into by ntuc agents at the roadshows or any where. They sell their whole life and endowment which you don't need and which are rotten with low return especailly the revosave which is a scam. Worse they package revosave with vivolife as buy one get one free. This is too much.Any MAS mystery shopper reading this blog?
You will be shiocked what these agents can do to get the commission.They have no conscience at all.
Term is good. especially those people asked u to buy term and not whole life. Make sure u know the bad and good of both things as one is apple and one is orange. U make sure the person will cover u after ur term expires when u r old and cant buy wholelife. And if after some yrs u happen to forget to pay your term premium on time and t policy lapses because there is no cash value (unlike whole life), if something happen to you, make sure your family looks for the person who insisted on term to compensate your family.
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