Participating policies, i.e. endowment or whole life policies, are designed to provide a guaranteed yield at a modest level (say 1% p.a.) and to provide variable reversionary and terminal bonuses that can increase the yield to a higher level. The bonuses are declared each year based on the financial results of the insurance company.
In the past, most life insurance companies were able to give an attractive yield to the policyholders. The insurance company invest the money well with a long term perspective and were able to achieve an attractive return. After taking away a fair proportion to cover their expenses and profits, they distribute most of the surplus to the policyholders with a high rate of bonus.
The insurance company maintains a manageable number of policy series, and distributes the same rate of reversionary or terminal bonuses to all policies in the same series. The policyholders in each series can see that they have been treated equally with other policyholders in the same series.
This practice has changed in recent years. Insurance companies have introduced too many policy series and distributes different rates of bonuses to policyholders in the same series. It is difficult for any policyholder to be sure that they are getting the fair rate of bonus, based on the actual experience of the fund.
To make matters worse, some insurance companies retain too much surplus in the fund, under the purported aim of "smoothing the bonus", or use the surplus to pay for high expenses, resulting in a poor yield to policyholders.
It is the lack of clarity that gives a bad name to participating policies in recent years. Many policyholders find that the projected bonuses made at the inception of the policy had been severely reduced due to "difficult investment climate", but it is not clear if the reduction is due solely to this cause or to other unethical and unfair practices.
To overcome this problem, the insurance company can adopt the "asset share" method to distribute bonus. This method ensures that each policyholder gets its fair asset share on the surrender or maturity of the policy based on the actual experience for that policy. It is quite to adopt this method using modern computer technology.
Some countries make it mandatory for the "asset share" method to be used, to ensure that the policyholders are fairly treated. The regulator in Malaysia took this step many years ago, in their effort to protect the interest of the consumers and to ensure fair practices.
In Singapore, many insurance companies have severely reduced their reversionary and terminal bonuses in recent years, often more than expected. Many consumers have lost trust in the participating policies and the insurance companies that sold these policies.
I hope that the regulator in Singapore will implement the "asset share" method early, to ensure that all policyholders are given a fair return in this volatile situation and that the trust in participating policies can be restored.
Tan Kin Lian
A wholelife living plan can only give about 2% return and ONLY after 25 years.
ReplyDeleteAn endowment can give about 3% after 20 years.
What is the main reason for the low return?
COST, COST ,COST COST COST......
Where are sources of cost?
operating expenses have gone up over the years.Like your salary increase so are the salaries of these people in the insurance companies.
The worse is there are others whose salaries increase faster and bigger. eg. the ceo, the senior managers and unnecessary large number of senior managers to give the ceo look like he is controlling a lot of senior managers; then the greedy insurance agents demanding higher commission.
While every cost has gone has the return increased? is the interest rate higher? are better bonuses declared?
NO.. to the above...and who are paying for these people ,their salaries , for their holidays in Peking, Australia and the commissions for the salesmen?
Of course the ever suckers like you consumers who trusted your insurance agents... and what do you get in return?
I bet many of you don't even know.
Let me tell you . If you insist on trusting your insurance agents YOU ARE ENDANGERING YOURSELF AND FAMILY FINANCIAL FUTURE because you are definitely under insured and you are NOT accumulating fast and more to fund your retirement and other goals becuase you have bought these rotten products called wholelife living and endowment or the despicable cash back anticipated endwoment.
If you think we are maligning and bashing the insurance agents please get a second opinion from a QUALIFIED financial planner and honest one too to review and check your insurance policies for all the mis-selling, misrepresentation and conflict of interest..
Those who know FISCA get your help there.
WARNING: All wholelife living products, endowment or anticipated endwoment disguised as cashbacks , NO MATTER WHAT COMPANY, they are all no good product for protection or saving. They destroy your life. Don't wait for 20 years to find out. It will be too late
To restore trust in this type of products the protection and saving feature must be improved enormously.
ReplyDeleteAs a protection plan it must be affordable and protection must be at low cost so that people can afford to have enough coverage to address their needs fully.
The return must be reasonable of at least 4% to meet inflation and better higher otherwise there is no REAL saving .Current products are at a loss.
Will this happen? sadly it won't..
these products are NOT sustainable WITHOUT INCREASING THE RISKS and the earlier they are destroyed the better before they destroy more people's financial life.
The other part of the product features is the salesmen.They too must be destroyed becuase salesmen and women DON"T add value, they erode your value.
The problem is that the insurance agents are disguising themselves as
ReplyDeletefinancial consultants , senior FC and executive FC, wealth managers, life planners , financial planners and all sort of titles.
The consumers are confused, don't know the real ones from the conmen insurance agents.
All these titles misrepresent and mislead the consumers and yet MAS is doing nothing. It is cheating if one misrepresents oneself what one can do.It is a sad thing that the regulator is not doing the right thing.
Since we are on our own we must support consumer associations that champion our interest.Eg FISCA.
No way to restore trust in participating polices.They have been damaged by insurance agents who indiscriminately sold them becuase of their own greed. Moreover, restoring trust means cutting the cost of the par products in order to give better protection value and return. I don't think it can be reversed. They should be removed or banned lest consumers are conned into buying them.
ReplyDeleteIf the insurance agents are willing to forgo at least 80% of the commission they received from wholelife and endowment maybe protection vale and return can be improved plus better value for money and competent advisory service then the paying of the commission is justifiable. Currently, what provided by insurance agents is worth only 10% of they are recieving, 150% of your premium and not those received by the company. The clients pay more than 250% for wholelife in total and with some insurance companies maybe much higher. Do you know some of you maybe paying life time premium to some insurance companies? I am sure you are not told by your agents even though it is a must to disclose to you.
Anyway, it is best not to buy any of these rotten products, to play safe. Many have been caught in the trap and they are in delima whether to cancel or keep. To cancel means loss, to keep means to continue losing.Of course many cancel becuase they can't afford the high premium. This is sad and the regulator , MAS, does nothing to help and in fact it is accessory to the fact.
Don't buy wholelife living , limited or unlimited, endwoment, anticipated and cash back , they are poisinous and toxic.
Well Said Mr Tan. Recently I wrote to my insurance company asking for clarifications on the severely reduced yield on my compounded series policy which I thought was guaranteed due to the 20% higher premiums over a normal policy of the same coverage. I could not quite understand the reply as it is fraught with alot of numbers. Can I forward the mail to you for your advice?
ReplyDeleteThanks
Don't look like much choice to me.
ReplyDeleteOption 1
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Wait for our dearer, lousier and slower regulators to help us get better value participating policies("Tan Ku" in Hokkien or wait long time)
Option 2
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Wait for CASE (Consumers Association of Singapore) to help us. Lagi Tan Ku. Where was CASE when the minibonds fiasco broke out?
Option 3
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- Learn how to buy term insurance.
- use the savings in premium (versus participating policies) and learn how to invest.
- Nobody likes to take investment risk. Including myself.
- But unless Temasek or GIC is willing to help CPF get a better rate of return for you, it's better we learn how to take care of ourselves.
- If you learn to help yourself, you have a much better negotiating power when the politicians come around to ask for your vote.
- Then, you can throw it back into his face and say, "tell me why should I vote for you? What have you done for me?"
I suspect that the low returns is due more to high expenses and the portion of the net assets that are not distributed instead of poor performance of the assets in the par fund. This is just a suspicion. To know the actual facts, one would need to study the detailed financials of the par fund.
ReplyDeleteOther factors remain or decrease and cost is rising, thus par products won't give decent return.
ReplyDeleteConsumers who want adequate protection are better off with term plans. It is less costly when you don't need it any more and cancel it.
For saving there is no better way than investing in equities, depending on risks, to accumulate your funds.NONE of the traditional insurance endowments can.So don't be conned into buying one. If any insurance agent tells these products can, please run as fast as you can.Your life will be in ruin, condemned to poverty.
I think so too. The returns in the last two years before the cuts in bonuses were double digit gains. Over ten percent, how can this be considered poor economic returns? What is more likely are the high expenditures including the high cost of executive chairs, meetings at posh hotels, expensive exotic retreats and the full page full colour advertisements in all the newspapers and onboard MRT trains touting their past honesty and integrity and promising you peace of mind when what they are doing indeed are the very opposite. Only the NTUC ministers can do the right thing but they are not doing it.
ReplyDelete大家好。新年快乐！
ReplyDeleteHappy New Year，everyone!
just a interesting note. do you guys know that insurance agent and manager's commission has been reduced by at least 30% since the 1990s?
ReplyDeletejust dunno why u guys keep saying their commission is increasing.
Anon January 24, 2010 4:48 AM,
ReplyDeleteonly a few products but the commission is still high . Is 50% in the 1st year high for filling up forms?
What about the increase from time to time?
The bottomline is the overall cost is increasing and the cost eats into the return and makes the product expensive . Commonsense will tell you cost is the opposite of return and is like giving cost a huge head start and the return doing the catch up.Some return takes a long long time . Today the breakeven point is getting further and further and something like 20 years. It is madness. In the old days during TKL's time probably 5 to 8 years.
No wonder ntuc is changing its tune. i notice that vivolife is considered protection but their agents are promoting as saving too. But for protection you don't pay so much to get so little protection. 1/20 of the cost of vivolife is reasonable for same sum assured.
MAS should lay a guideline for product design. Return less than 4% after 12 years is considered a bad saving plan. Consider the fact that you invest regularly for 12 years you have very high probability that you get 8% at least so 4% is fair and reasonable assuming cost of insurance erodes the the premium.
If MAS doesn't regulate then the unethical insurers and their agents will CONtinue to con their customers becuase customers are unaware and clueless about insurance and return.
They are conscienceless like animals.
Hi Anon 4:48AM,
ReplyDelete30% reduction in commission is still too little. 80% should be more like it! As of today, average total commission for wholelife & endowment products are still 18 months of premiums. This is still too damn high, for mostly effort in smooth talking and filling up forms.
If you bother to read the earlier postings, you will know that commission is just the tip of the ice-berg for costs. The salaries and bonuses of CEOs, CFOs, COOs, VPs, Directors, General Managers, Senior Mgrs, Sales Mgrs, Executives are constantly on the rise. These people's salaries don't depend on commission --- they depend on amount of premiums that can be clawed and bullshitted from customers every year. If insurance company staffs' salaries are tied to actual returns for customers, their pay will have been decreasing since 1998.
And don't forget about all those incentive overseas trips, monthly incentive dinners at posh hotels or restaurants, sales rallies and meetings at expensive venues, etc. etc.
I work in insurance industry so I know. I am those that will call a spade a spade. No nice words or smooth talking for me.
so if the agent and managers' commission has been reduced then the only conclusion is that their cEO pay has increased tremendously to make up the difference. Where is our money is the million dollar question. But the NTUC ministers are too busy checking their fat pay checks and feeling rich to answer it.
ReplyDeleteThey had a sales rally yesterday a time of bullshit and crocodile tears by the ceo. Come on, however good your sales for 2009 makes you only the sales champions of the year. This tells a lot that these insurance agents are salesmen and NOT the misrepresenting financial consultants their name cards say.
ReplyDeleteAnd you know what and how salesmen operate and their modus operandi . They don't add value to clients but add commission to themselves. I am NOT surprised they will be the SUPER DUPERS OF THE YEAR and super duping sales champions of 2009. Come clean , your days are numbered and payback time is also round the corner.Please wait for surprise visit from MAS.
the forum is useful but most of the comments here doesnt seems objective to me. there is full of hatred perspective in this forum. and hatred blinds clarity.
ReplyDeletei worked for the MAS before and not all consultants are that bad. i personally have 2 very good consultants and they are referred. there are so many claims every year and sadly ppl tends to look only at the negatives rather than the positives.
even if a person manages to claim 100k for critical illness but his bills comes up to 300k, most of the time he will still say the insurance is bullshit. that is a sad thing about asians.
personally my family did claim before and it was really a big help especially when my 2 consultants personally delivered the cheques to us and visited us regularly.
maybe probably u guys have some bad experiences before but maybe you sld not prejudge all just because of bad past experiences. if you have really go throught real life claims, you probably wont be making such remarks.
Dear 4.30pm.
ReplyDeleteConsultants is spelt as CON-sultants
Anon January 25, 2010 4:39 AM
ReplyDelete"personally my family did claim before and it was really a big help especially when my 2 consultants personally delivered the cheques to us and visited us regularly."
The service you received was NON financial. The deliberation here is these salesmen are salesemen and NOT financial consultant worthy of the title . I wonder how much you know about financial advsiory work that consultants are supposed to dispense in order to do justice to your needs.
How much did you claim ,I have doubt that it was adequate to address your needs. Has it occurred to you that you were short changed?. Did you consider taking legal action against your 'consultant' for conflict of interest and for breaching section 27 of the FAA.
You might not realise becuase you are no different form all other consumers. Working in MAS didn't make you any knowledgeable or savvy. Why don't you ask the man in charge of market conduct and he can tell you the blatant malpractices among the insurance agents.
Friend , the way the insurance agents approach your concerns and needs matters alot and it makes or breaks your goals.
Unfortunately, the insurance agents are salesmen and women who may be honest but incompetent and this is more disastrous.You could have bought a lot of rubbish because you trusted your agents and buying a lot rubbish won't help in meeting your goals.
Hi Anon 4:39AM,
ReplyDeleteI got a real life claim experience for you. One of my close relatives around 55yo last year got colon cancer. She claimed her NTUC Wholelife for $35K. Now I ask you -- what can $35K do for cancer treatment? Or for her 2 teenagers? Luckily one of her kids was graduating and able to get a job.
Somemore the NTUC agent sold my relative when she was in her late 40s. The high commission wholelife cost $200/month, and my relative's take-home salary is only $900/mth. Every month she spends 22% of her take-home pay for pathetic coverage.
2 things this NTUC agent did not do beforehand:-
1) Discuss if my relative wanted a higher-level Shield plan e.g. B1 Ward. My relative only had basic CPF Medishield covering C Ward.
2) Even though knowing that my relative was union member, that agent did not mention about LUV term plan that is able to cover up to $200K including CI. We only know about LUV after enquiring why the lousy payout for wholelife. The premium for LUV is only a fraction of the wholelife.
The NTUC agent did not bother to do the above due diligence becoz the Shield plan only pays a few dollars commission, and the LUV plan does not pay any commission at all.
With only $35K payout and since her cancer was already 4th stage, my relative did not want to further burden her family (who are rather financially modest) and only did the minimum initial treatment in C Ward. After that she insisted not to continue hospital treatment or stay in nursing home, but instead to spend remaining days at home. Other relatives helped with employing maid, engaging subsidised home bursing, cooking, housework etc. My relative passed away about 5 months after the initial cancer diagnosis.
Err, Anon 4:39 AM, I am glad that you "worked for the MAS before" and are no longer working for them now.
ReplyDeleteYou even implied that if one were to claim $100K for $300K of bills, that is a good outcome and one should be grateful. I don't know whether you have passed PSLE or not, but even a primary school kid knows that being able to only cover 1/3 of your needs is NOT a good deal. And this does not even address the loss of income yet.
If you are trying to demonstrate how financially savvy and astute you are, then you should know that even the Life Insurance Association Of S'pore states a rule of thumb of 10X annual income as the ideal insurance coverage for a person with dependents. I challenge you to show us that you have wholelife insurance providing yourself with 10X of your annual income in coverage.
In Singapore, even using non-group term life, the premium will still be very expensive. Such 10X annual income cover can only be reasonably paid for using group-term life insurance.
Of course, if you are so knowledgeable and enlightened about financial matters, you should already know all this right?!?
Anon January 25, 2010 1:46 PM
ReplyDeletethere is no point commenting or elaborating further since there are so much hatred, assumptions and judgements here.
i dont see any need to prove myself. i am just a human who has worked for MAS. all i can say is i know my stuff and i am not shortchanged. we did not pay a single cent for the medical costs involved even tho the total is 6 digits. its practically impossible to short change me anyway since i bought ILPs from my consultants and not traditional products. i know how my ILPs work.
i believe after this comment, there may be people making negative remarks abt ILPs and things like the high cost etc cos some of you guys really only look at negatives.
in life if you only look at negatives, you may really miss out the real positives in life.
i shall stop commenting further. god bless.
give that guy some breathing air. its amazing how much people can assume and trying to prove a point without knowing much of the whole pic.
ReplyDeleteAnon January 25, 2010 2:19 PM,
ReplyDeleteyou have a case here to sue the agent and the company for mis-selling and conflict of interest.
It is glaringly obvious that $35K was NEVER enough to address Critical illness and also the premium paid for the $35K sum assured could have got her $350000 at least. Even it was your relative who 'wanted' the product( which I doubt as she was in no position to understand what suited her) the ntuc was still guilty of recommendation NOT On reasonable basis considering her financial constrains, her age and her job.
I suggest that you help her to lodge with MAS. Get the Fact Find Form or KYC and look for the mis-selling. The $35K was definitely a mis-selling and she has a case against the agent and the company.She should have been insured for at least $200K , using term or group term for treatment cost and loss of income..
This is a case of blatantly robbing your relative of her financial well being and the agent must pay for it.
Anon,January 25, 2010 6:12 PM,
ReplyDeleteYou said that you worked for MAS but you betrayed your self that you were not an expert in insurance planning.Your earlier post shows you were not when you made a statement that $100K was enough even the bill came to $300K. I cannot see how could you be satisfied and give praise to the agents for non financial service like delivery a check which wasn't enough to pay the bill. You should have sued the agents . You had a primi facie case that the agents failed to meet section 27. Have you heard of the phrase "reasonable basis" which can be found in the FAA?
The $100K was sold as a product and no need analysis was conducted for your relative and that is why the sum assured fell short of the his needs.
There you go again showing that how clueless you are about managing personal finance.ILP if it is single premiun is investment and if it is regular it is mimicking traditonal wholeife or also known as variable wholelife.Surely working in MAS you had come across such terms, right? or is MAS had its head in the sand long time ago already?
Come on , don't bull around here trying to protect insurance agents.
Check with MAS to see how many agents are really qualified, maybe qualified in the tikam tikam exams from the exam mill.
Let me tell you 99.99% of the insurance agents are NOT qualified as financial consultants or planners. They are at best conman salesmen if not snakeoil or koyok salesmen tikam tikam with their policyholders' lives and financial future.
The Watchman
hey watchman and other so call "know their stuff" ppl fyi there is something know as single premium wholelife. he could have gotten this together with shield plan.
ReplyDeletetake a look for instance GE Smart Protect Single Premium. As low as 5,000 you can set death and tpd for 20k and critical illness protection for 40k and it covers whole life.
and best part the sales charge is only NET 3% with the best feature of dynamic mortality charges which is even cheaper den any term. i doubt any IFA agents have that.
please do ur research before you comment for the benefit of everyone. respect Mr Tan when he acknowledged that there are both unethical and ethical planners around.
oh btw watchman he did mentioned he did not pay a single cent for the medical costs involved.
ReplyDeletehis 100k is just an example if u understood.
Anon January 26, 2010 4:58 AM,
ReplyDeleteyou seem confused. With Regular premium this MAS guy 's relative was already under insured. What more with single premium? That is even more difficult. Let me advise you if you are the ordinary Joe in the street don't ever squander a single lump sum on risk management.Regular premium does better. SP is meant for the rich to splurge and squander and burn.
I agree there are ethical and unethical planners but UNETHICAL 'PLANNERS'(aka insurance agents) MAKE UP 99.99%.
The issue is about providing enough and insurance salesmen sell don't becuase they are unethical and this results in under insurance.
The Watchman
Anon January 26, 2010 4:58 AM,
ReplyDeleteI don't know whether you are a CONfused GE agent or simply just a CONned-sumer regurgitating whatever your good agent friend told you. You should also do your research before commenting.
That GE Smart Protect Single Premium is nothing but a single-premium Insurance Linked Plan. ILPs are notorious for being POOR VALUE due to high sales charges, recurring policy fees, escalating mortality charges, and of course high commission to the agent.
Fact 1: This ILP only covers Death and TPD, NO Critical Illness. If you want CI cover, you need to buy extra rider.
Fact 2: CI Rider need to pay regular premiums, not lump sum. And the CI Rider premiums are not guaranteed -- can go higher in future.
Fact 3: You say pay $5K to get $20K cover i.e. sum assured of 4X single premium. But this is only if customer is still young in her 20s. If mid-30s and above, sum assured will be less. Furthermore, it is not cheap. If I want $200K cover (which is not much) then I need to cough out at least $50K!
Fact 4: GE Smart Protect has annual policy fee of $24 ($60 if Regular Premium version). Worse is that this fee is deducted by selling off units at lower Bid price, after you have bought the units at the higher Offer price, thus the company earn the spread (5%).
Fact 5: As ILP, the cash value of GE Smart Protect depends entirely on investment performance of underlying funds. You are introducing another problem & headache to what is basically a straightforward having adequate insurance issue. GE's fine print also cover themselves by saying you are exposed to investment risks and possible loss of principal amount.
Fact 6: GE Smart Protect, like all ILPs, has escalating mortality charges as you grow older -- it eats from your cash value. This mortality charge is also paid like the policy fee -- you buy the more expensive Offer and they sell the cheaper Bid to earn extra 5%. You say dynamic mortality charges. Sure, you can lower the mortality charge by reducing your insurance cover. This begs the question: Why the hell buy this product then?! You are left at the mercy of having very little or no insurance protection & whatever fluctuating cash value depending on the investments.
Fact 7: The sales charge is 3% only if you use CPFIS monies, otherwise it is 5%. Do you know that you can buy the exact same investment funds (they are from Lion Global formerly known as OCBC Asset Mgmt) from online portals where default sales charge is 1.5% and can even go down to 1.0%?
If you are an ethical adviser, you should know better than to mix-up investment with protection. Even if your financial analysis leads you to conclude that the customer requires both protection as well as investment, you should very easily guide the customer to buy term for protection and to invest via online portals which is cheaper and much more options, some peer funds better than the Lion Global funds.
As for example of protection coverage, well, I am 39 yrs old and paying $51/mth for $400,000 cover (Death, TPD, Terminal Illness, personal accident) and another $25/mth for $250,000 cover (critical illness only).
Lucky that he left MAS but unlucky there are still plenty of his kind there. Ever wonder why MAS is slow in coming to address mis-selling and misrepresentation? Now you know, they are a confused bunch who don't what is financial planning and confused product peddling as planning.No wonder product pushing is still an option allowed in the FACT FIND FORM or KYC for product pushing insurance agents to con consumers.Also no wonder so many consumers are still under insured.Imagine 1/3 of your needs addressed is considered adequate and this explains why insurance agents love to push and peddle wholelife products that earn them high commission becuase no need to meet fully the needs of the consumers, 1/3 is enough. 1/3 is considered reasonable basis. The other 2/3 , sell house to pay, borrow to pay, or owe the hospital. This is financial planning as understood by someone from MAS. I see no future for genuine honest planners. Bright prospect for product pushers and koyok salesmen.
ReplyDelete