Wednesday, April 28, 2010

Read the benefit illustration

I get requests from the public for my views on whether a certain insurance product is suitable for them. I advise them on the following:

a) Ask the agent to provide the benefit illustration to you
b) Ask the agent to explain the full contents of the benefit illustration
c) Insist on a clear explanation on every item in the benefit illustration
d) No not buy the policy until you are convinced that it clearly meets your needs and provide good value for money.
e) Look at the distribution cost and effect of deduction (as explained in my book on financial planning)

I find that most life insurance policies provide poor value as an investment product and should be avoided. I have looked at many benefit illustrations and they tend to confirm my general impression that these products are:

a) high cost
b) give poor value to consumers
c) have a lot of vague and unreliable projections

The only ife insurance policy that you should buy are term insurance for a duration of up to 25 years. These points are explained in my book. I urge you to read my book, rather than ask me to give my views peculiar to the products that is being sold to you.

You can buy my books online at

Tan Kin Lian


Anonymous said...

Mr. Tan,
My son just entered NS and is covered under the SAF insurance. The commander said that even after NS, my son should continue the coverage and paying the premium even though he will be in the university. Does it make sense to continue coverage or wait till he started working after uni?

Tan Kin Lian said...

Reply to 3:12 PM
The SAF Insurnce gives good value for money, not only during NS but after your son goes to university and starts work. This policy is good until age 50, maybe longer. The premium is extremely low. Your son should be covered for $100,000 or more.

Your son should avoid putting a lot of money in other life insurance policies, especially sold by insurance sales people. These policies take away a lot of savings and give a poor return.

You should buy my financial planning book and give it to your son. It cost $12 and 12 hours of reading by your son. It can save him a lot of wasted money afterwards.

Anonymous said...

If you are buying a whole life or an endowment insurance other than the BI ask the insurance agent on the following.
1.when is the break even point?
it should be between 10 to 13 years.
This applies to plain vanilla WL and not limited payment living policy which can break early or at the end of the term becuase so much more premium is paid 'upfront'.
2. what is the return?
related to #1 it should be at least 3.5% at the 20th years and 3.5% only good to hedge against inflation.It is actually a refund of your all premium paid in real term , in other words ,no accumulation. This is the minimum you must have.
3.In the event of a claim is the cash value paid to you on top of the sum assured plus bonus.
4.What is the interest rate on auto premium loan (APL) or loan?
5.Why need to borrow own money?
6. Is the cost of insurance increasing with age? If yes , how come not mentioned?
7. Is the cost of insurance based on age and not when you take it up?

I bet the questions cannot be answered to your satisfaction but they are important questions to address. If the insurance agents avoid them you avoid the agent becuase the agents know their products cannot meet these minimum requirements.
Anyway, you will be shocked that all these products from all the insurance companies cannot meet these minimum.If all products cannot meet why are they still sold.Something is wrong, isn't it? Is it that there are still suckers around who don't know that they don't know. The truth is there are a lot of suckers and the insurance agents and the companies know. Just that they don't tell.Ask the CEOs and the senior managers whether they have those products that are peddled by their agents.
What is good for the ganders(the consumers) is not necessary good for the geese (the CEOs and the senior managers).
I remember a senior manger was sacked because he said publicly that consumers are stupid.This is what they really think of you consumers , secretly.

Anonymous said...

If possible, you should get your son to buy up to the maximum sum allowed ($600k). On top of that, also consider to add the critical illness plan to the main Group Term Plan as well. That is because when young, you are likely to be healthy and so likely to be accepted on the critical illness plan on normal term.

Aviva is currently running a promotion for SAF Group Term Policy holders:
1) If you keep your $600k plan for 12 months, Aviva will offer one month free premium.
2) If you also take up the Aviva MyShield plan, you will enjoy 10% discount on the premium as long as you keep the SAF Group Term Plan.

Just fyi, Aviva has the habit to rebate the premium for its Group Term Life Policy in good years. For FY09, I received almost 38% rebate for my Group Term Life. Whether good or no good, you decide yourself.

Anonymous said...

Don't get conned into buying those rubbish wholelife or regular ILPs plans. They are rip off . You will be very sorry that a large chunk of your money goes to service rubbish products and in return get rubbish return.
For a young man just buy group term critical illness and a medical plan like Myshield from Aviva.Because you are not earning buy about $100K.Remember insurance is to address a need at a point in time and NOT try to prempt the future. Review when there is a change in your circumstances,eg when you start earning, married , have a kid and then kids etc.
Don't be worth more dead than alive.

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