Tan Kin Lian's Blog: A good endowment policy

Sunday, October 04, 2009

A good endowment policy

Someone asked, "what is a good endowment policy available in the market?"

In my view, a good endowment policy has to meet all of the following:
a) has a reduction in yield of not more than 1%
b) distributes the bonus based on the asset share principle
c) can provide a net yield of at least 3.5% p. a. based on the current environment

I believe that none of the endowment policies in the market meet the above criteria. I hope that some insurance companies will introduce a good endowment policy in the future. They have to reduce the commission payable to agents to achieve the "reduction in yield" target.

However, if any person, including insurer or agent, considers that a specific product meets this criteria, please send an e-mail to kinlian@gmail.com.

Tan Kin Lian

14 comments:

Anonymous said...: Rex would like to ask a question,

I think it is great to know that 3.5% pa is achievable according to your experience.

I think the loss in commission of agnets will be compensated by incresed sales volume which means the agents still dont lose in the long term.
Something along the lines of "sell in volume".

I am wondering why in this industry, the players "don't sell by volume" and do competition on such basis in the first place?

It is like the chicken rice stall who keeps the price at $2. More customers come, so on the whole they are still ok.

Why can't the insurance industry people do that and we have a happy win win situation.

REX; October 04, 2009 12:32 PM
Zhummmeng said...: No endowment policy in the market can meet your criteria, none at all and all of them come far short even from the so called cooperative or social enterprise ntuc income.
My opinion of a DECENT endowment is that the return must be at least 4% and it should be achieved by the 15th year. I am bench marking the return against a conservative portfolio which can give 6% or more over the same period and allowing for the rubbish insurance and frills found in normal endowment.
Why 4%? The return is marginally above inflation in the long term.If you are saving conservatively 4% is often the 'idiot's" required return.; October 04, 2009 1:14 PM
Tan Kin Lian said...: It is possible for an endowment policy to be designed for direct sale and give an attractive return to the investors.

I hope that some of the life insurance companies, especially those who are willing to develop an alternative direct channel, will adopt this approach. Many are reluctant to do so, fearing a "channel conflict". So, we have to wait for someone to be bold and face this challenge.; October 04, 2009 1:42 PM
Anonymous said...: MAS has proposed a direct channel for the savvy consumers to the insurance companies and the products stripped off all commission except the companies' profits and expenses.
Why should savvy consumers pay for rubbish advice or no advice?; October 04, 2009 2:09 PM
Vincent Sear said...: I agree and understand T.K.L. comments. The policy issuing company won't want pricing differentiation between different channels. The tied agents will complain and even revolt. The tied agency force has been built up over years and decades to sizeable numbers with committments from both sides. The companies can't just "disengage" them too.

This situation still leaves the "savvy client" with one option. Just find a suitably inexpensive term insurance and invest the rest of the money according to one's "savviness". There's no need to complain about expensive policies or low yields. Take charge ourselves.; October 04, 2009 5:02 PM
Anonymous said...: Why is it in the past, endowment plans could give good returns but not now?

starlight; October 04, 2009 6:11 PM
Anonymous said...: sorry to all agents out there. perhaps it is time to call a ban on commission payout. MAS shd take the bold step and curb all commission earned agent. stick with the basic salary, 13th mth bonus.

I believe, the end results will benefit all the end consumers. Just imagine, without the evil of commission monster, agents will not be incentivised to sell risky, lousy products to consumers. The insurance companies distribution cost will be reduced and the ultimate saving in cost can be rechannelled to give a higher annual payout to policyholders. How i wish Mr Tan.KL is still the big boss of our co-op insurance co. I like his direct sale channel.. unfortunately, i think that resulted in his agents' unhappines. sad....; October 04, 2009 11:16 PM
Anonymous said...: Vincent,
there are a lot of ignorant and gullible consumers who get conned daily. We must protect them. MAS must protect them lest they are cheated by charlatan insurance agents and there are many of these agents out there. Their victims are usually poor. They need good and competent advisers to help them.
In the past endwoment could give decent return because COST was low, interest rate was high and investment return was high .Now, the greedy insurance agents demand more, CEOs want higher salary(they pay themselves), senior managers want 6 figure salary and staff salaries increased by 10 folds,smart alek marketing put up big ads in the newspaper, all these cost went up except interest rate, investment return.
That is why wholelife and endowment are bordering on scams and the companies use an army of specially trained con artistes to peddle and dump these par products on their trusting customers and policyholders. We know they are very bad products and want to expose them and the con artistes who live off the hard earned saving of their customers.These agents are despicable.; October 04, 2009 11:30 PM
Anonymous said...: Commission is the root of all evils. It should be banned. MAS must realise by now that commission has been the cause of all the mis-selling and misrepresentation by insurance agents.Insurance agents are salesmen and they sell and push product for commission and not to help the clients.It is well known. Ask the MDRT agents how did they qualify for this dubious award. Is it by helping their customers to meet their financial goals or their own goals? The answer is sell and push only products with hgih commission. Don't care whether the clients can pay or not so long they can pay for 1 year.
Commission is mother of all evils.; October 04, 2009 11:51 PM
Vincent Sear said...: MDRT (Million Dollar Round Table) qualification is measured by commission income, not only commission income but only front-end 1st-year commission income. That is, if an agent sells a policy that has commission scaled over several years, only the 1st year commission counts, the rest don't count. Naturally, this encourages agents to sell high 1st year commission products.; October 05, 2009 12:16 PM
Anonymous said...: precisely, isnt there a confliciting interests from the agents' roles?

agents want to earn more and qualify for the MDRT, he has to resolve to selling. Beside selling more, he has to sell the 'right' products and to the 'right' target end consumers. With such confliciting interests, i really doubt most agent can give the best financial advice.

However, if one income is not driven by commissions, i believe he will give a more objective and impartial advice.

Time for our big co-op income to take the bold steps. I know my suggestion will be hated by all agents but lets just calm down and think about the logic i mentioned above, it makes sense.; October 05, 2009 6:21 PM
Vincent Sear said...: MDRT is an US organisation. It has gained international recognition and coveted by agents worldwide because US has been the leading insurance market in the world for a long time. However, I think that MAS should ban Singapore-registered agents and brokers from applying to qualify for MDRT. It's really meaningless in terms of financial planning and care for clients. It encourages companies to design products with high front-end charges and thereby, encouraging agents/brokers to sell products with high front-end costs.

In any case, it's an ego organisation to profit out of the egoes of profit-making agents. The agents who who qualifies need to pay membership fees (hundreds of dollars) and attend congresses (thousands of dollars). It celebrates greed and profit. Only the greedy wants to be part of it.; October 05, 2009 7:04 PM
Anonymous said...: I am getting about 4.2% compounded on the NTUC endowment plan. Of course, I bought it way back in 1992. I am now in my 17th year! :)

8 more years to maturity!!! :D; October 05, 2009 10:12 PM
Anonymous said...: Pray hard nothing happens to your return because with this new management you don't know what they will do to your policy.
BTW 4.2% isn't a great return but better than the current endwoment which likely to hit only 3%; October 05, 2009 11:53 PM