Tan Kin Lian's Blog: Benefit Illustration for a Life Insurance Policy

Friday, October 02, 2009

Benefit Illustration for a Life Insurance Policy

When the agent gave you a benefit illustration, did the agent explain the following?

1. That you have a 14 day free look period to cancel the policy for a full refund?
2. That the amount shown as "distribution cost" s taken away from your premium?
3. That the "effect of deduction" is taken away from your investments to pay the various charges under the policy?

If the agent has explained these points to you clearly. the agent is being transparent and can be trusted. If some of the information is hidden from you or the explanation is not clear, you have to read the benefit illustration again. If you need help, you can approach FISCA, www.fisca.sg

Tan Kin Lian

7 comments:

Anonymous said...: Also must include the return at different stages or years of the policy because most agents will show the return or rather absolute cash value 25-30 years. This doe not give an accurate picture of the policy. EG. nowadays the policies have very low bonus before the 20 years if the breakeven is 20th year or 25th year and in some cases breakeven is the same as maturity for endwoment. For shortest limited payment the breakeven maybe at the 10th year but after that the bonus increase is worse than snail pace. This must be pointed out instead agents only show the plus points and hide the rest.
Consumers must be aware that comparisons must examine many areas and NOT premium only. Some may show protection slightly cheaper in term of per thousand sum assured but loses out in return in percentage.
It is not easy for consumers to make comparison because they do not know what to compare and they inevitably end up comparing premium which is wrong.
Anyway all par products are to be avoided . Common to all are poor protection and low return.It is NOT a good as a protection device and as a saving vehicle it is MISERABLE and resulting in paying too much for less and under insurance and no accumulation.
Consumers should stop buying par products from salesmen because they are only interested in the high commission.; October 02, 2009 9:14 AM
Anonymous said...: Sir, what is the best endowment product to buy in the market nowadays? Thank You.; October 03, 2009 4:14 AM
Anonymous said...: All the endowment products are rotten. Don't buy endwoment and wholelife. They give miserable return. How do you like to save for 25 years and earn only 3%?
Take "risk" and invest regularly and earn at least 6%-8%.; October 03, 2009 10:46 AM
Anonymous said...: The agents are trained to market, not to explain. Unless you know them very well, like family or best friend, else even casual friends might not that tell you all that you should know.; October 03, 2009 8:44 PM
Sim said...: I think you're being unfair to the products. They may give low returns over a long period of time but I don't hear people complaining about the crap interest rates from banks.

Risk appetite is something that's personal. Someone can be happy with 3% over 25 years instead of -3% over 25 months. My dad keeps his money in the bank for the 0.125% interest rates and he doesn't mind. People should read it as potential loss of 6-8% instead of return.

The whole point about endowment and wholelife policy isn't about the return anyway. It's like complaining about your bonds not reimbursing your medical bills when you're hospitalised. There is no other financial instrument that guarantees a fund in the future like an endowment. The problem is most people are "persuaded" to buy it without that intention in mind. Instead, bought it with the cash value in mind which is wrong.

And whole life insurance is insurance. Returns??? I always advise people not to buy whole life insurance if they are thinking of surrendering. Wrong product. But I agree with you, whole life insurance and endowment commission is far too high and encourages moral hazard...; October 04, 2009 12:08 AM
Vincent Sear said...: I agree with Sim. Look for a product that suits the purpose, not one that appears to be the cheapest or offers the highest potential returns. I like the example of bonds not reimbursing hospital bills. An endowment not only guarantees a sum upon maturity, but also guarantees a sum halfway should an insured event occurs, e.g. death or disability.

However, I also agree with what T.K.L. mentioned elsewhere in this blog, endowment yields are generally very low all across the board nowadays which makes it very unattractive to use as a long-term targetted savings plan. However, if the insurance component is important, e.g. there're children to take care of, then this has to be taken into consideration in the financial planning.

Another thing to look at is the distrubution cost. It's not the same as commission (for the agent selling the product). It's the cost deducted by the company before allocating premium to participating life fund or ILP fund. It's from this that the company pays the agent commission, which is typically between half to a third, with the rest going to management and marketing expenses.; October 04, 2009 1:59 PM
Anonymous said...: Dear Mr Tan KL
An insurance agent showed me a new policy recently and he carefully pointed out the items mentioned by you. I think this agent must have read your blog.

I decided not to buy the policy as I felt the distribution cost was too high. So, your blog is having some positive results.

I hope that the insurance company will start to reduce the distribution cost and lower the premium for customers.

Thank you for taking the first step to make this possible.

Robert; October 04, 2009 4:31 PM