Tuesday, February 16, 2010

Switching to a limited payment whole life policy

In the past, many people bought a whole life insurance policy. It provides life insurance cover for the whole of life and requires the premium to be paid for the whole of life. It has an option for the policyholder to terminate the policy and receive the cash value, or to stop the premium payment and receive a paid up value (payable on death). This option is usually exercised at an older age, when the policyholder has retired from work.

Take a hypothetical example. The policyholder insures for $100,000 and pays an annual premium of $2,000. After 30 years, he can terminate the policy and receive a cash value of (say) $75,000. Alternatively, he can stop the premium payment and continue the policy for a paid-up value of (say) $95,000, inclusive of bonus. The paid up value is payable on death.

Some insurance agents are unethical. They approach their existing policyholder and tell them that their company has introduced a new whole life policy that requires to be paid for only 20 years. They advice the policyholder to terminate an existing whole life policy and take up the new policy. They did not tell the policyholder that the existing policy already has the option to convert the policy into a paid up policy at any time.

If the policyholder is presented with a proper analysis of both options, the policyholder would have found that it is better to continue with the existing policy. However, the policyholder is usually presented with misleading advice to switch to the new policy. This bad advice is in the self-interest of the agent and is against the interest of the consumer. The insurance agent is able to earn a large commission  on the new policy that has been sold.

If you have been given this type of wrong advice, you can write to me at kinlian@gmail.com

Tan Kin Lian


Anonymous said...

Once again it shows how vulnerable consumers are to unethical practices of insurance agents. People think they know a lot about insurance , the truth they know little and become easy victims of charlatan insurance agents.
Back to basic. What is insurance and what is its purpose? Get a right answer and you will see insurance in the right perspective.
First , insurance is to manage your personal risks in term of dollar and cents. The important thing is to know how much needed to manage and restore to the original condition or nearest.In other words you must have enough insurance if an event you insured happens otherwise it is useless and cannot manage the risk.Unfortunately, Singaporeans are insured very little and not even to the nearest.
LIA released a report that in 2009 only an average of $45K sum assured was sold and good to buy a coffin and pay off some debts only.Funeral expenses may have to depend on donation of 'white gold'. This is grossly under insurance and is far short of an average of $500K a family of 2 requires.It is shame and the so called nobility of the profession.
The reason behind this under insurance is conflict of interest and commission. Insurance agents only sell products with high commission and consumers cannot have enough of it.This is also the reason why you should avoid agents mdrt or cot marks on their name cards. They are the despicable agents who conned a lot of their customers to qualify for these marks. MAS knows it and had many times sounded to the members(insurers) of this association, LIA, of this injustice but apparently fell on deaf ears. The problem is self regulation too. Even though MAS knows it is wrong but it seems helpless. Knowing the weaknesses of MAS the insurers took advantage till today and had never heeded the call. The last guidelines called for a new culture of fair dealing outcome for consumers, this also has gone unheeded. MAS was snubbed and all the insurers continued to do what is 'best' for themselves, product pushing, and one local social enterprise took it to the extreme to make itself #1 with super duping results and boasted that the result is proof of its 'professionalism'. It is right , duping salesmanship.
Pushing high commission products is one way to fleece the unsuspecting policyholders and another way is to churn or twist their old policies. Do you notice that insurers are always rolling out 'new products' and claim that they are 'better' than the old ones? The truth is new products are NOT better than the old worse in term of protection and return.They usually have rubbish additional 'benefits' repackaged with reduced old core benefits to make them look new. One buys the core benefits and NOT the fringe benefits and the core has become rotten and needed the fringe benefits to cover up.
The new products are always promoted to existing customers. The insurance agents will then exploit the trust of their own policyholders and make them their guinea pigs by using the ruse of twisting and churning their existing policies. This is how new products create new business for the agents and the companies.
I wonder when MAS will come to the 'rescue' of the consumers. I doubt it will if the minibond saga is any guide.
Commission is the root of all evils.Remove commission and the evils will stop. Think about it. if wholelife and endowment carry very low commission (5%) will the greedy insurance agents tout them as they touted them now? I bet they will quit the business becuase 99% of them are unqualified and incompetent salesmen and women disguised as financial consultants.

Anonymous said...

After the AIA critical year saga limited payment term whole life became popular with insurance companies who exploited it for thier own gain. There is nothing special about this limited scam. You can actually turn a whole life plan into a limited plan. The advantage of having a wholelife in your early years means you have greater sum assured which you need it badly at this point of time. If you just can afford this premium having a limited plan means you must settle for lower sum assured.
At the best limited payment term WL is a gimmick and at its worst it is a scam meant for the greedy insurance agents to manipulate their own trusting policyholders.
Whatever, I suggest that consumers stay away from wholelife products, limited or not, they are all scams now to feed the greed of the agents and for insurers to play play with cheap capital.

trumpet said...

"If the policyholder is presented with a proper analysis of both options, the policyholder would have found that it is better to continue with the existing policy."

why is the old policy (usually) better?

Anonymous said...

Even better, ntuc agents create sales by a dubious means of buy one get one free. NTUC agents have been conning policyholders to buy revosave and use the payouts to pay for vivolife. It is wonder policyholders fell for that trick.In fact this ruse calls for destruction of one product to fund another product.It is twisting and replacement.
Anyone who fell for this ruse should report to MAS.

Anonymous said...

very informative and useful article as we get to know regarding whole life insurance coverage.

Maria said...

totally agree with you .. If the policyholder is presented with a proper analysis of both options by the insurance agent which are available then surely the policyholder would have found that it is better to continue with the existing life insurance policy

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