Tan Kin Lian's Blog: Misleading arguments by life insurance agents

Thursday, November 26, 2009

Misleading arguments by life insurance agents

Life insurance agents are trained to present strong arguments to get the unsavvy public to buy life and investment-linked policies that pay high commission to the agents. Here are some of the arguments put forward by them against term insurance:

a) Term insurance is for a certain period. After the period is over, you will not have any more life insurance cover.

b) Term insurance covers a fixed sum, which does not keep up with inflation.

These arguments are misleading and do not present an honest picture. Here are the reasons:

a) You only need life insurance cover when your children still depend on you financially. After 25 years, they have grown up. During this period, you would have accumulated sufficient savings to surpass the sum insured and will not need life insurance any more.

b) If your term insurance covers a level sum, the accumulated savings will be more than adequate to compensate for the effect of inflation. Actually, a decreasing sum insured may be adequate for most people.

The greatest danger of inflation is not on the death benefit, but on the savings in a life insurance policy. A net yield of 2% provided by a life insurance policy is not sufficient to cover inflation. It is important for a policyholder to invest the savings more wisely to get a higher return (say 4% or more) to cover inflation. A life insurance policy does not provide a fair return, due to the high charges for commission and profit.

Many agents know the facts, but they are dishonest in presenting misleading arguments, in the chase for the lucrative commission.

Tan Kin Lian

8 comments:

Anonymous said...: Insurance agents are trained to argue bull, to lie and to misrepresent.
Their favourite arguments go like below:
1.It is cheaper to buy when you are a baby and you pay baby premium even when you an old man. Is it true?
Yes , the premium is the same but the cost of insurance(CoI) is a bomb when you are old.The agents will not tell you that your cash value is raided by the insurer to pay the difference.
Put in a another way.
Does your insurer or your agent tell you?
Did your agent or insurer tell you that old man pays the same CoI as the baby when the baby is as old as the old man?
2. The agents told you it was a saving plan.It means your saving is your money. Why do you need to borrow and pay an interest rate that is far higher than what the insurer would pay you as bonus. Why pay 5.5-8% on your own money? How much do insurance companies pay you? If you have kept it for 20 years it is only break even. If kept for 30 years it is only 2.5% but the insurance companies are charging you 5.5-8%......that is why when you take a loan you are finished. The insurers will laugh all the way to the bank.You are better off surrender or terminate it.
But when you want to surrender you have agents conspiring with their companies to discourage you from terminating. They tell you in bad time you need protection more. This is Fxxx craps they tell you, isn't it?
What they meant is their revenue is terminated when you terminate.
These people are just shameless and untruthful and cheats and they cover up a lot of truths from you.
The next time ask your agents about this.; November 26, 2009 11:55 PM
Anonymous said...: The insurance agents lie about wholelife products for thier own interest with the help of the company.Indirectly by MAS, because MAS seems to measure production by annual premium income (API). And wholelife products give high API.This means MAS is promoting product pushing too.; November 27, 2009 1:11 AM
Anonymous said...: Term is expensive when you are old?
Do the despicable agents tell you that their wholelife plan is also charging very high mortality charge when policyholders are old? Do the WL policy documents warn policyholders of this?
No!!!! this is covered up.. Today the unqualified agents don't know and so are their clients. This the best kept conspiracy of the industry.
Suze Orman is trying to expose the cheats and she has no vested interest. She is trying to do a national service to her fellow human beings . Her campaign has hit a lot of pockets.
What she is doing naturally attracted a lot of critics. But who are her critics? Tell us that she is wrong.; November 27, 2009 11:04 AM
Anonymous said...: I am 46 now. Here is a simple problem: what instrument should I use if after my death at age 76 (and beyond) I want to give some money to my two kids after they have grown up? Here are my requirements:

1. I am risk adverse and the instrument must guaranteed that I do not lose my capital. Since I will be six-feet under by then, I cannot, like our dear MM, rise again, if something is wrong.

2. The payout must be guaranteed to be at least 2.5 times my total capital outlay;

3. It must not be taxed.

I think my requirements are very simple to adhere to.

Cheers.; November 27, 2009 3:32 PM
Anonymous said...: To Anon 27 Nov 3:32pm

Good if you can use Excel / Open Office to work out the required rates of return. This will allow you to have starting point to determine feasibility, probability based on historical returns of asset class allocations, and weigh against your risk appetite (this is actually a crap shoot anyway).

Since I don't know your preferred actual amount, I just based on 2.5X total capital invested over 30 years.

If regular fixed payments over the 30 yrs, you need something that can give you 5.7%pa.

If you have luxury of lump sum to put in now e.g. $50K or $100K, then you just need to find something that can give you 3.1%pa.

For 3.1%pa, I guess you can talk to your nearest friendly financial planner to look at various non-cashback endowments & select the one with highest guaranteed & lowest cost. Do note the returns are projections only, and the guaranteed part at best is like 2% to 2.5% per annum.

If high net worth & your lump sum is like $300K or $500K, can talk to private banker for stat board and Temasick bonds yielding 4+%. Disadvantage is you must be strict (lao lan) with the banker to minimise (negotiate down) costs and avoid toxic stuff. Also you or your "trusted" banker need to actively source for good quality bonds to roll over coupons and principal, coz the coupons themselves are not compounding.

If like most of us, you can only invest regularly over the months and years, then you are looking at how to achieve 5.7% compounded every year for 30 yrs. No endowments / wholelife can project this return. My layman gut feel is you need to go for something like 60% equities and 40% investment-grade sovereign & corporate bond funds. Also the 60% equities probably need to compose at least half in global emerging markets, in order to provide the returns, especially over the next 10 yrs.

Talk to a few "qualified" financial planners to work this out. Don't ask me how to know if FP is "qualified" or "integrity" -- rule of thumb be skeptical, always questioning, never commit without comparing and taking a few days to think through and analyse on your own first. Good FPs shld not get defensive, they shld be willing to put in writing the fees / commissions / expense ratios. They shld be competent to demonstrate historical backtesting of various % of asset allocations (5, 10, 15, 20, 30 yrs backtest), using the actual proposed funds and/or appropriate benchmarks -- ask them why use this particular benchmark?

Last but not least, a combination of decreasing and level term insurance in case you conk off before your ideal farewell age. If your investments for the kids are doing well, you can lower or even terminate the insurance in your later years (65+).; November 27, 2009 6:32 PM
Anonymous said...: Low risk low return.High return requires high risk.
You have a 30 year time horizon.
1.If you use a wholelife product to save your capital will not double because your mortality cost will erode your cash value after 60 years old.Wholelife gives about 2.5% after 25 years and will drop after after this due to mortality cost.
2.If you use a single premium endowment that is possible.You have to decide the amount you want to give away.Assuming a return of 3.5% in 30 years' time your capital should become 2.8 times.
3.Use a term product as legacy provided you die before 80 or between 80 and 99 years. Again you have to decide how much you want to give away.
Remember they are not inflation adjusted.
Eg.assuming an inflation of 3.5% $500,000 recieved in 30 years' time is equal to $180,000 today.
All the above approaches don't beat lnflation.

There is no death duty any more.; November 27, 2009 6:41 PM
Anonymous said...: To Anon 3:32pm,

ahh... I was the one who wrote the long suggestions above.

Actually for no-brainer approach, just get term until 99yr old.

If want to save some money, check around all your relatives to see at what ages they passed away. You can take the 75% percentile, maybe +5 yrs for greater assurance, and then insure yourself to that age.

If by then still alive, no choice but to jump from nearest HDB block for kids to claim money.; November 27, 2009 6:47 PM
Anonymous said...: To anon 6.47 and 6.32

thanks for the kind suggestions, i will work through them. I have a pretty high term to 70, so I am not worried what if I "kick the bucket" within the next 20~25 years. but as mr. tan pointed out, there is an expiry. if i buy a term to 99, i will be over-paying on a product that doesn't keep up with inflation, especially nowadays wages are stagnant.

i want to leave something predictable behind, as a parting gift. hence for requirement no. 2. i am risk averse person and don't have time to buy and sell or trade stocks. cannot sell house because i think no value then - 50-year old HDB and besides wife may still need it. Is tying down lumpsum of 100K lumpsum today for 30 years just for 3% p.a. yield a good idea? 10~12 years maybe, but not 30 years! Dollar cost averaging is good but it is not guaranteed.

guess i have to explore the good ideas presented here further.

thank you all. anyway, i think i am one of the very few parents who wants to leave behind some cash for their sons/daughters to have a head start in their lives after I am gone. hahaha.

anon 3.32; November 28, 2009 3:23 AM