Tan Kin Lian's Blog: Commission for life insurance agents

Monday, May 10, 2010

Commission for life insurance agents

A life insurance agent argued that the agent has to incur high expenses and deserve the commission that is paid. This is only one part of the story, as seen from the perspective of the agent.

The agent should also see this issue from the perspective of their client. The agent has a duty to take care of the interest of the client. This includes recommending a suitable life insurance product that is good for the client. In the case of an investment plan, there is a duty to advice a plan that offers a fair return for the long term savings. In the case of a term insurance policy, the agent has to recommend a policy that charges a fair rate of premium (but does not need to be the lowest).

The problem arises when there is a conflict of interest. Many agents recommend a policy that pays a high commission but this is at the expense of the client (who trusted the agent). The agent is trained to give the marketing reasons to sell the policy, but they are not honest advice.

Some insurance agents behave worse. They approach the client every few years to get the client to stop an existing policy and take up a new "better" product. The agent earns the high commission once again, and the unsuspecting client is being taken "for a ride" and to incur a high cost again. This is how the financial future of many consumers are destroyed by the bad advice given by some unscrupulous agents.

There are some agents that behave ethically and recommend honest products that are good for consumers. The difficulty is for the consumer to tell one agent from another. This is why consumers have to be educated about insurance. My book on financial planning is aimed at achieving this goal. There is a chapter about dealing with financial advisers or insurance agents.

Several countries are now implementing legislation to ban the payment of commission on life insurance products. The agent has to earn a fee to provide financial advice to the consumer. Singapore should follow the same step, to safeguard the financial future of the ordinary people.

Tan Kin Lian

9 comments:

Anonymous said...: It is too early to say whether banning commission is helpful for the consumer.

With the incentive to be pushed, most consumers will procrastinate and this will result in not doing anything until it is too late. Like normal people, most people won't act until things happen.

Insurance advisors are the catalyst to making change happen. Doing something is always better than doing nothing.; May 10, 2010 9:58 AM
Anonymous said...: Anon May 10, 2010 9:58 AM,
so you beleive in 'something is better than nothing', right? This is waht Singaporeans are now. They all have insurance but NOT enough, only 1/10 of what they need. If you ask Sinaporeans how MUCH insurance they have. Their answer is I have MANY. You see the difference in the words.
Many Sinaporeans have MANY policies but they add up to only $50K, $10K each. WHY??? they were sold by salesmen and women, the product sellers. But why these products? with the premiun of these policies they can buy $1million coverage and why it wasn't sold? Conflict of interest!!! So you see commission screwed up Singaporeans , right? That is why other countries are banning commission because it is the root of all evils.; May 10, 2010 12:50 PM
Anonymous said...: To Anon 9:58AM,

You are correct -- but only from the point of the conman "catalyst advisors". The commission is precisely the incentive for them to push expensive products that give low cover and pathetic returns.

You just talk to those bigshot LIA directors. Average life cover in Singapore is only $50K, and the actual claims last year was average only a pathetic $47K.

Majority of people are pushed wholelife and endowment. So how come the pathetic coverage as admitted by even LIA? With this kind of lousy products, it is better for average person to just save regularly in FDs and money market funds. Cheaper, safer and no penalty.

Over 20 years, I have never met any "catalyst advisor" who advised on term insurance like SAF, SAFRA, HOMETEAM, LUV, POGIS.

LIA also stated in CPF website that your so-called "catalyst advisors" are not required to monitor and manage ILPs sold to customers. So if economy start turning bad and suddenly markets start crashing and your ILPs lose 70%, too bad -- you cannot scold your agent. In fact he can F U and threaten to sue you for harassment. So in the first place why buy from such people and pay them 14-18 months commission?
http://www.wilfredling.com/content/view/1160/9/; May 10, 2010 1:05 PM
Anonymous said...: Insurance agents don't deserve the commission for form filling and submission of the application forms.
For agents who push products or advise on products should be paid 10% of the premium in the first year and 5% in the subsequent 2 years.This is fair for the work they do and expertise they have.
I hope commission will be removed and in its place a fairer model is introduced, perhaps fee based.
It will be transparent for consumers who know exactly how much they will pay for the advisory service. I beleive it will be value for money unlike the current commission based whcih is not transparent and consumers pay so much for so little they get.; May 10, 2010 1:39 PM
Anonymous said...: Just do away with agents & sell poilicies that covers basic needs over the counter.; May 11, 2010 9:23 AM
Anonymous said...: In other countries they have online portals.; May 11, 2010 7:35 PM
Anonymous said...: Noticed this and I agreed with him.

http://akhiat.com/2010/05/11/unpublished-forum-letter-on-ilp/

Too bad Straits Times refuse to publish it.; May 11, 2010 11:27 PM
Anonymous said...: Insurance agents are responsible to help us get the right insurance for ourselves. These agents are either captive agents or independent insurance agents. Usually more than a quarter of insurance agents are self-employed, some work for agencies or brokerages and some for insurance carriers.
In case of a captive agent, there is normally a fixed salary. The first few months would be invested in understanding the company and their product. There is usually a target set for the agents which they have to meet by the end of the guaranteed period. If the agent meets the set target and performs well the salary structure may be revised. It totally depends on the company's policy.
When an insurance agent works for an independent agency, normally he gets his income from the commission only. The bigger client base he has, the greater his chance of a good commission. Those insurance agents who work independently get their income from the commissions generated from new sales only. This seems to be the most difficult of all types of insurance careers for agents.
The income made by insurance agents also depends on the type of insurance they sell. There are agents who started with $50,000 and rose to $60,000/year. Insurance agents can earn more with more years of experience. Hard working agents can push up their earnings to 120,000/year too.
Term Life Insurance; October 27, 2010 8:09 PM
construction insurance said...: It is a good idea to review different methods of purchasing insurance. There are benefits and disadvantages to each one. Since car insurance is mandatory by law and there are many different policy options, it is important to be clear what type of coverage you are getting during the time of purchase.; June 15, 2012 2:45 PM