Many agent advice consumers that they need to buy life insurance for the whole of life. This is bad advice.
The consumer only need to buy life insurance up to the time that their youngest child reaches age 25. By that time, all the children would have been financially independent. This is likely to be age 60 or 65 (for those who have their children at an older age).
There is no need for life insurance after age 65. If the consumer had been prudent in having regular saving during their working life, they are likely to have sufficient savings to take care of their retirement needs. This could amount $250,000 for an ordinary wage earner or more for a high income earner. With this savings, there is no need for life insurance cover.
The agent likes to advice consumers to buy the most expensive insurance policy, as their commission is directly linked to the amount of premium. They can earn between 12 to 24 months of the savings. If you save $300 a month, you may lose $7,200 of your savings to pay commission to the agent or the expenses and profit of the insurance company. This is a lot of money to give away, especially as the saving plan does not give you an attractive return (compared to saving in an low cost unit trust) and imposes a heavy penalty if the policy is terminated prematurely.
You should have your savings separately and buy Term Insurance or Family Income Benefit for 25 years or up to age 60 years (if this is shorter). This is adequate for most people. But you can consider your own financial situation to make a suitable decision. Do not be misled by an insurance agent or financial planner who is only interested in earning a higher commission.
Tan Kin lian
Hi Mr Tan, What you have said is quite true. I have the similar issue with my life insurance.My life insurance will only matured when i am over 70 yrs old. i am 36 this year. It was simply too long a period to pay the premium. However if i were to terminate now, i would lost about half of the premuim that i have paid so far. What should i do? to continue till it break even or cancel now to switch to term? What will be your advice?
ReplyDeleteI have a question to ask you. For people who live from hand to mouth daily, do you think they can save enough till age 60 or 65 to be self-insured by then and also to take care of their retirement needs? If not, do you think you advice is being too extreme as you did not take into consideration the financial condition, risk appetite and needs of the individuals?
ReplyDeleteLastly, not all insurance agent/financial planner are what you thought to be (i.e. interested in earning a higher commission).
To Agape_Lim
ReplyDeleteIf the person lives from hand to mouth, he cannot afford to buy life insurance to take care of the agent's earnings. He has to keep his savings for the future. He only needs to buy medical and personal insurance. I hope that there are at least some agent who thinks of these people's needs and not sell them a life policy that makes them lose their savings on early termination (which is the most likely outcome).
To 3:46 PM
ReplyDeleteIf you want to know what to do with your existing policy, read this FAQ
http://www.tankinlian.com/faq/exist.html
Agape_Lim,
ReplyDeleteif a person is living from hand to mouth he needs even more help from the insurance agents but he isn't getting.
The problem the insurance agents only sell to people who can afford wholelife products.There are agents who sold $10K to these people. What can $10K do for these poor people? But the commission for the agents is still quite 'substantial'.
3 types of agents can do damage to consumers.
The fisrt type are the dishonest ones but they will soon be found out.
The second type are the incompetent and unqualified but look and sound and behave like honest and caring and sincere .This is worse of the three becuase they always appear sincere, caring to get the trust of the consumers.You should know all crooks use trust to cheat their victims and the amount cheated is big.This type of agents do exactly this.
If they really truthful about their sincerity and caringness they should upgrade themselves so that they can give COMPETENT advice to the best interest of their clients but they don't.
The third type are the dishonest and incompetent.They will soon be found out too like the first type.
Based on these 3 profiles where are most agents fall into?
Let me give you a clue. Out of 15000 agents less than 1000 have tertiary professional qualifications. Is your agent one of the 14000? TERTIARY qualfication and NOT tikam tikam certificates by College of Insurance which your pet can pass too. In fact the plumbers have to pass a harder exam, both theory and practical.
So what do you get? these 14000 agents are all SALESMEN and WOMEN out to con you into buying a product that gives them high commission and NOT your financial well being and goals.
How are they measured in term of conning skills?
The MDRT, COT and TOT are the benchmarks of how good they are to squeeze the commission from their clients. These marks are NOT about how many people especailly poor people the agents have helped to secure their financial future and financil independence.
The benchmarks are measured in term of commission earned. YOU DON'T NEED TO BE A MATH GENIUS TO KNOW HOW OR WHICH IS THE BEST WAY TO QUALIFY FOR THEM IF COMMISSION IS THE BASIS OF QUALIFICATION, right? This explains why the agents only PUSH and PEDDLE wholelife and endwoment to ANYONE regardless of their circumstances and needs.These products are sold to every of their clients as the cure all and heal anything products like the antibiotics.Have you heard of the koyok man or the snake oil salesmen OR THE MAGIC STONES CONMAN ? The insurance agents are no different from all of them if they are salesmen.Salesmanship is about, especaill selling intangible products like life insurance,
trying to convince the clients they like to hear first; if it doesn't work confuse the clients and if it still doesn't work con the clients by bullshitting and finally the must close is by cheating.These are not exhaustive as you know there many technigues
like MANIPULATIVE and RELATIONSHIP.
Unless MAS does something about the ways these agents sell and approach their needs and how they are remunerated you will have a lot of these charlatans agents around.
i think we should not just think of when to terminate and get back the cash value of whole life insurance. The idea of this whole life insurance is a life long commitment and you shld know before you enter the contract. This also means that you shld have about 3 to 6 months of emergency funds before entering to such contracts. (there are more things to consider, this is one of them.)
ReplyDeleteTo the 'buy term and invest the rest' school of thought does not necessary fit all people. Buying term means that they have to pay the premium despite of financial difficulties but whole life insurance has other arrangement whereby you can use ur cash value or policy loan to pay help pay ur premium.
2nd, invest the rest to unit trust? Can all people stand the volatility of unit trust? Example value of portfolio is $1000 and the following 3 mth the value dropped to $500. There is also liquidity constraint in investing unit trust especially when the price keep going down and you will be reluctant to sell the units for cash.
3rd whole life insurance is a savings and protection tool. R we forgetting the protection tool of whole life insurance?
greenday
Greenday,
ReplyDeleteyou are indeed green.
The only thing u mentioned makes sense is the emergency fund and the rest of your argument for WL is flawed.
1. buy term and invest the rest is NOT a one size fits all. You can have many variations to suit the clients.The one size fits all is the WL, the cure all and cure anything and which all insurance agents sell as such.The reason is NOT the WL can address the needs but they can give big commission for the agents.
2. WL is very risky becuase it is a sitting duck. It has lock in risk. It has liquidity risk. It has
guaranteed loss risk.It has inflationary risk.It is expensive,; it is inefficient and ineffective as saving and protection tool.etc etc
BTITR is low risk as the timing of the premium follows the volatility of market. Volatility rewards the investors , no volatility no rewards.Despite the volatility of WL investment the investor is NOT rewarded.
On the very first day there is already cash value whereas WL after 3 years.The breakeven point for WL is 15-20 years whereas BTITR 's breakeven can be anytime.
Return for BTITR can be as high as 10% depending on the competence of the advisers who structure the portfolio to suit the clients' circumstances and needs whereas for WL the portfolio is one size fits all. Everyone's premium is thrown into the same pot of portfolio which does NOT distinguish the unigue risks, needs and time horizon of the policyholders.
Lastly, the most disgusting feature of the WL is "you don't own the cash value until you terminate".
It is stupid that you have to borrow your OWN money and pay high interest for the loan.The insurer pays you 2% after 25 years but you pay them up to 8% when you 'borrow'. The return becomes negative in favour of the insurer. Stupid , right.What if you borrow before the breakeven? It is the dumbest , right?
So you see, WL is the dumbest and stupidiest product for saving and protection.
My first policy (Umbrella) with Income was bought 23 years ago, followed by another 10 others with Income when Mr Tan was the CEO. One needs a proper financial planning from day one he or she takes on his or her first job of employment. I believe he or she would realize the benefits of being insured against certain risks say, at the age of 40s or early 50s.
ReplyDeleteI am in the early 50s, and I would like to say thank you to Mr Tan and his team that offered a series of products during his year of service with Income.
well i have something to say. well i have to agreed that most financial adviser out there regardless from bank or insurance company are unethical at times because i think most of them do not know what is financial planning.
ReplyDeletei have been giving views here lately because i feel that this blog is not objective enough. It is one sided view. Too much of 'buy term and invest the rest' school of thought. I think this school of thought is also not a 'one size fits all' solution. I myself earn 150% return in stock trading from 2008 Nov to Feb 2009. A substantial return of cos.
I definitely like the idea of buy term and invest the rest like what i am doing but i think we have to consider about other people risk profile as well as their character in investing. Yes whole life insurance does not give u great return i have to agreed that but it is still a good tool for people lack of discipline in savings. Why? This is because people do not save. Most people lack of discipline in saving. For instance i once tell people to save about 20% of what you earn but people lack that kind of discipline because there is too much 'wants' in their mind. It is sad because i am worried about their retirement. Hence we cannot just give one sided view that WL insurance is a stupid idea, what i think we lack here is empathy. we must think of people out there with little income, needs protection and is risk adverse at the same time.
After all financial adviser can also help you to invest in unit trust for people who buy term and invest the rest. They too earn commission on that. ( i think so).
greenday
The obvious elephant in the room, and the root of all evil is that the remuneration is tied directly to the sale of products that have high commission structure, such as wholelife, endowments, ILPs. Not just remuneration per se, but livelihood itself i.e. if don't grab enuf commission, then eat grass -- no money for baby powder, no money for mortgage etc. Even for fixed salary financial sales staff e.g. some RMs, office-based insurance advisers, their job security comes in quotas to meet for these high-comm products. Don't meet the quotas, then the company will kick your ass out on the streets.
ReplyDeleteImagine if your boss tomorrow tells you: I want you to raise $2000 every month for the company budget -- don't care how you do it, get from co-workers, family, friends, relatives, strangers -- just do it! If cannot, I deduct from your salary. If you cannot do it for 2 consecutive months, I will fire you!
I will bet many will immediately try to find another job. Those who continue I bet will eventually resort to desperate & unethical means. Most will not succeed. It is the same in the financial sales industry. That's why turnover of these staff is very very high.
And that's why many problems will be minimised if govt bans commissions; all sales will be fee based and based on true comprehensive financial needs investigation, analysis and planning.
This is what insurance salesmen and women are doing . Those who do well are given the title of super duper sales champion for their good conning and duping skill.There is a local company whose agents are very good at it.Their ceo is the coach who goads and eggs them and entices them with high commissions ,incentives, praises and overseas trip.They are a bunch of koyokman at pasar malam. Some are magic stones salesmen and women and none is a financial consultant , a title they use to con their trusting customers, friends , relatives and policyholders.
ReplyDeleteAsk questions. Test them out. Seek alternate opinion, those who are knowledgeable. It doesnt mean that they have titles, they are experts. Most of them dont even know what they are selling. Its really pathetic.
ReplyDeleteHad many experiences where I am not able to entrust my hard earned money with them.
Good financial planners are a rare commodity in Singapore.
Hi,
ReplyDeleteI am a young Financial Advisor and I advocate buying life insurance as my clients first 'cash' paying policy to own.Simply because if they buy the idea of buying term that normally expires when they reach 65.Their coverages will end and all the small yet important riders like accident and critical illnesses riders will terminate as well.Plus premiums will be cheaper plus chances of getting covered is higher.
Looking at the patterns of Singaporeans today focusing on their careers first before settling down and having a family, in the future, many of us will probably have kids late.Plus people will tend to live longer in the future according to the government.
First problem to ponder here is not your first child you are planning to have,rather your only one or even your last one.It may come when you are approaching your 50s.Mark Chin just had his first one at 57.His baby is financially reliant on him till he is probably 75.If your term policy is your only policy then you eliminate the possibility of having a child at that age and raising him/her comfortably with a peace of mind.
My advice is get an affordable limited payment life policy first-covering death,disability,critical illnesses and accident.Pay 20 years- covered for life plus the policy would have some returns you can always draw from in rainy days.Next get term with high coverages and what ever coverages that you may lack from the first planning as premiums will be much affordable.Save up and then invest and then save up again and invest again according to your risk profile of course.During bad times when your investments are not performing,dig into your policy returns if you really need the money.
Fast forward your retirement years lets say 65.With proper planning you should have at least 500k in the bank and investments and your one whole life policy,loans paid up term policy is up,leaving you with 100k coverages from your limited payment policy and of course you are not paying a single cent anymore.If you are planning to do a 'Mark Chin' or not it does not matter.If you are not however you will wonder,what use is this 100k coverage with critical illnesses attached?
ReplyDeleteOne thing for sure is that theres money in it.You can reward it to your grandchildren as University funds.
Second,if you were to encounter a critical illness you can always use the payout to try experimental medication that may not be covered by your shield plan or I call 'uncovered medication costs'.
The 100k coverages?...Its time to do some form of Estate Planning.
Estate Planning= what will your assets do for you when you die.
Write up a will for your savings and investments to who you want it to go to-all 500k or so that you may have.
The 100k policy?The one you signed up for when you just started working at $200/month for 20 years=$54 000 altogether.Nominate that 100k to a charity organisation get it from your insurer.
What have you become?
A financially independent person alive a huge contributor to society when not around plus your will will make the division of your assets among your family sooo much easier.Just think you paid 54k-you give back (guaranteed) to your charity 100k.
ReplyDeleteWithout this 'bad' whole life policy will you donate 100k from your 500k savings to charity just like that?Many would not as that leaves them 400k to enjoy or even keep for rainy days like 'uncovered medication costs'.
Being a Muslim Financial Advisor my advice is to tell my clients to imagine I need just 10 of such people and they would have contributed 1 million dollars to building a new Mosque or helping underprivileged kids.Now think about my other friends who do the same...SPCA....Halfway houses...temples,churches...heart foundation..The possibility of giving back is endless and the decision to use your policy to assist you is wise especially in a financial aspect.
So to all those who have regretted buying your life policies no worries you have the coverages for life...time to plan what you can do with it if you live longer then your 'term policy'.
Whole life policy still relevant? My take is you will need 1 whole life maybe a few term policies- depending on your financial standing and importance to your family income-and many investments.
But its sad many ppl I have reviewed neglect Financial planning strategies and purchased too many endowment plans as their only planning as it is being pushed by road shows and banks.