Tan Kin Lian's Blog: Why Life Insurance Is Not an Investment

Thursday, April 15, 2010

Why Life Insurance Is Not an Investment

Life insurance is one of those things that most of us need but none of us enjoy talking about.

When it does come up in conversations, it’s mostly because someone is complaining about being sold a whole life insurance or variable life insurance that is both expensive and complex, who would be better off with a plain term insurance policy.

http://bucks.blogs.nytimes.com/2010/04/12/why-life-insurance-is-not-an-investment/

My comment
The same message is given in my b ook, Practical Guide on Financial Planning ($12) which is available here. Spend $12 and save a few thousand dollars by avoiding a bad investment.

21 comments:

Anonymous said...: it is scam conceived long time ago and unfortunately took decade to discover it. What a pity. There are still many insurance companies promoting this scam. If you check their books you will be shocked that it is becoming PONZI scheme.
Consumers must wake up that soon these companies need to sell more wholelife products and fast enough to keep with the surrender rate and maturing rate. The companies will have to resort openly to unethical means to con and cheat to keep up and to honour the old policies. The Policy owners protection Fund will go bankrupt if every policy becomes 'due' this the debacle and the run on the insurance companies will come. Consumers are beginning to see through the scheme the scam and that they have cheated by these companies and tehy will not be able to honour the contract.Wholelife product have become the Ponzi scheme.; April 14, 2010 11:48 PM
Tan Kin Lian said...: Life insurance is NOT a ponzi scheme as they hae to set aside adequate reserves to meet their oblitations, and are regulated by MAS. However, they have high charges, and give a poor retrun to policyholders - so it is a bad investment.; April 15, 2010 12:12 AM
Grateful said...: This New York Times article is indeed helpful but to fans of this blog, nothing much in it is new.

Thank you, Mr Tan.
U taught me a lot..; April 15, 2010 1:41 AM
Anonymous said...: Mr. Tan,
Equitable Life Insurance resorted to ponzi scheme when it became desparate to keep up with payment of bonus and later collapsed when it restructured to special bonus whihc was clobbered during the market melt down.. and ponzi was back in use.
This will happen when a company incurs high cost and tries to be competitive same time.; April 15, 2010 8:41 AM
Anonymous said...: Why it is not a good investment becuase it is not good investment. it is rotten. You are better off in the bank. You can see your money every day, touch it and DON'T HAVE TO BORROW AND PAY HEFTY INTEREST ON YOUR OWN MONEY.; April 15, 2010 12:07 PM
Anonymous said...: If you want to buy ntuc SAIL or GROWTH PLAN buy from Citi bank because they give you rebates in the form of vouchers. EG. invest $100K you get $1000 worth of vouchers.
Buy from ntuc agents you get nothing except from the top insurance agents, they also give rebate. I heard that was how they got to the top.; April 15, 2010 12:43 PM
Anonymous said...: Be aware that Ntuc Sail or Growth are single-premium endowments. These are basically for people with too much money and don't mind their money being locked up for years and lending money to insurance company for low interest payments. You are looking at 2% to 3% annual returns, depending on whether 5 years or 10 yrs. Most likely to be below inflation rate, or at most equal to inflation.

The vouchers are just a one-time sales gimmick, while your money suffers year after year, for 5 yrs or 10 yrs.; April 15, 2010 3:14 PM
Anonymous said...: We have to thank TKL for giving us a detailed insight into this insurance business, now we know buy only term, healthshield and leave the rest alone, and invest the rest of our money elsewhere.
I still don't trust insurance companies, they try to get away when it comes to claiming, as shown by people commenting thru' this blog.; April 15, 2010 3:17 PM
Anonymous said...: Growth is for people who have too much money and who don't mind losing or who don't need to grow anymore and also don't mind to be locked up for many years.
For the majority of consumers it is sure die if you don't have much and you lock away for years to get less than inflation or equal inflation , this means you have to work during your retirement becuase money sure not enough.
Having said that , do ntuc agents care or do they know ? Who cares so long they get commission and the customers don't lose. That is what they think. Unfortunately, customers can still sue these agents for inappropriate or wrong advice even they have not lost their capital.
Anyone who is in this situation can actually sue the agent for inappropriate advice.; April 15, 2010 6:43 PM
Anonymous said...: Yes, you can get vouchers from Citibank for buying Growth and SAIL.
Why buy from ntuc agents, no vouchers?
Not bad, the vouchers. For $50K Citibank gives $5000 vouchers.; April 15, 2010 7:52 PM
Anonymous said...: An investment is primarily to grow your money or to make your money work hard for you OR to preserve your purchasing power.
Life insurance cannot do both and is a loss proposition. Insurance is for protection but why pay so much and get little protection? Isn't there something wrong with the products? It is a wonder why consumers are grossly under insured? Is it a wonder why many today are still struggling with retirement?
Why do insurers still sell them? Why do insurance agents still peddle them and worse cheat their customers into believe that it can protect them adequately?
There is something wrong with this business. There is no truthfulness. There is no transparency, no disclosure but it is full of lies, dishonesty and greed.It is a scam.The perpetrators are the insurers and the insurance agents and the suckers are the consumers.
The regulator is a spectator and is enjoying the entertainment.; April 16, 2010 9:50 AM
Anonymous said...: I also got $5000 vouchers from CITIbank when I invested $50,000 with them in SAIL. Ya, it is better than buying from my ntuc agent and get nothing.; April 16, 2010 10:04 AM
Anonymous said...: One motivation for the author of the article is that people can look into buying into his mutual funds. It is nothing new and proponents of buying term always try to advocate investing in funds. It is never just to buy term insurance.

For some, investing in funds or any sort of instruments is just not the cup of tea. Just as you can't force people to buy insurance, you can't force people to invest too.; April 17, 2010 12:17 AM
Anonymous said...: Another Tsunami coming and this time from Goldman Sachs.. history repeated. Goldman's best kept secret will soon burst another bubble..

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, SEC's director of the enforcement division in a statement."
Deception is old and the product is new and complex and so are many insurance products out there.; April 17, 2010 12:18 AM
Anonymous said...: Anon April 17, 2010 12:17 AM,
so you think that the author has ulterior motive, right? to persuade that term is good so you will buy funds, right? You are narrow minded. The author has NO VESTED interest when educating you.
Whether you invest in endowment or in fund it is still investing and into different asset and portfolio and you can lose but with endowment you have no say at all in the risk, time horizon and the allocation. If you are scare you can invest in the same portfolio as the insurance company and you get better return without their so called 'charges' which are suspected.; April 17, 2010 10:21 AM
Wayne said...: No matter how you slice it, Buy-Term-Invest-The-Rest(B.T.I.T.R)definitely costs less (and thus make more money) over the long term.
I remember asking a friend (no investment knowledge) why he likes B.T.I.T.R, his immediate answer was, "Buy whole life- first 3 years NO MONEY one you know! My unit trust- can see one from day one".
If you can send me any whole life insurance quote (benefit illustration or B.I in short), I can show you easily that B.T.I.T.R beats the whole life in terms of cash value (end result) by 25% or better. I have done this a few times, and I can say AIA's policies are the worst of all, even on B.I.; April 19, 2010 1:13 PM
Anonymous said...: AiA is the worst, second comes Pru
and third Manulife and GE , fourth is ntuc and fifth is TMAsia....but before you jump into the best THEY ARE ALL ROTTEN. Don't buy any products with cash value from any of the insurers. All of the returns don't beat INFLATION even after donkey 30 years. So , are they good?; April 19, 2010 6:09 PM
Wayne said...: This comment has been removed by the author.; April 19, 2010 6:40 PM
Wayne said...: If I remember correctly, 1 year+ ago, I got two quotes from Asialife and AIA respectively and did a comparision. For the same coverage, AIA's premium payment is double of Asialife's, and yet the cash value at age 65 (or something around that) is only half of Asialife's. I was very shocked and can still recall it til now.
No wonder AIA can afford the big offices and advertise so extensively.; April 19, 2010 7:53 PM
Anonymous said...: Did you buy an endwoment from Pru 18 years ago using your CPF? Bid your policy good bye..The return is lower than what CPF gives, ie lower than 2.5%..it is 1.8% and that is the time when a FT was the ceo of the company.; April 20, 2010 9:55 AM
Anonymous said...: "Buy-Term-Invest-The-Rest(B.T.I.T.R)definitely costs less (and thus make more money) over the long term.'

Right, except getting clueless Singaporeans to "invest the rest" is like pulling teeth.

"Eh not really interested lar"

"Make more money? Dunwan lar, remain poor can liao..."

"Its okay..."

"Depends lor...depends on wat ar....a lot of things lor..."

"I too lazy to pick up pen to sign form, how?"

*look at you and smile but refuse to say anything*

*Dont even want to look at you, just look at table...*

You go around telling people to invest in unit trusts i can guarantee you, you will see most Singaporeans give you this kind of attitude. Unless you are a chiobu then they will ask you to go have lunch with them to "discuss"...but then after they find out they cannot date you, they leave you with the bill.

Some people are very lazy. They just want to be execused from thinking. This is why you get people with diploma in engineering settling for a secretary job with 1k take home pay. No career advancement opportunities, everyday just 9-5, make coffee, take notes during meetings, type reports...and they are happy.

Ask them to go find another job, take up training courses to upgrade themselves, "dunwan lar too troublesome".

Same thing with investment. These very same people who "excused thinking" are not going to go find out how to invest on their own...please lar...best thing you can hope for is to get them to sign up for some plan that, KEY WORD HERE, gives a good return to beat inflation.; April 22, 2010 10:06 PM