Tan Kin Lian's Blog: Cost of insurance

Saturday, June 26, 2010

Cost of insurance

Singapore has low mortality rate (death rate) among young people. The rate for most working people below 50 years is less than 0.5 per 1,000. At this death rate, the cost of insurance to provide $300,000 should be less than $300 (after allowing for expenses and profit of the insurance company). You can get this type of coverage at this low rate from group insurance scheme offered to memebrs of SAF, SAFRA, trade unions and public officers.

Many people, however, are now paying 10 to 20 times of this premium to get a similar coverage. The only reason for paying so much is that the part of the premium is being invested to get a return. If this is the argument, then it is important that the yield on the premium that is invested should be attractive, compared to other types of investments. But this is not the case, as most life insurance policies give a return of less than 2% per annum over a long period. A fair return should be 4%, but this is being taken away from the high expenses of the insurance company.

The advice given by many insurance agents are not helpful. On the one hand, they argue that the life insurance policy gives a return on the premium, and argue against term insurance (which does not provide any return). But, when they are confronted with the fact that the return is too low, they changed their tune to argue about the importance of having insurance cover to protect the family. Sadly, the cost of the insurance products that they offer for protection is too high.

Insurance agents face a dilemma. If they offer the products that are good for consumers, they are not able to earn a high income. They can only earn more by selling products that "rip off" the unsavvy consumers.

Some insurance agents are honest and ethical and genuinuely wish to give the right advice to their customers. However, customers are not willing to pay an adequate fee for the time that is spent. And these insurance agents are not able to get sufficient business to make give an adequate income.

What is the solution? The growth on online portals that offer insurance directly is one useful step. Another important step is for consumers to be educated about financial matter. They can join FISCA (http://www.fisca.sg/) and attend the talk on financial planning offered by FISCA.

Consumers can also get useful tips from my book, Practical Guide on Financial Planning.

Tan Kin Lian

2 comments:

Anonymous said...: Online life insurance without load is quite popular in US. It should work here. It is direct without the agents manipulating the buying process.
Considering the number of option 3 or product advice options which is meant for savvy customers who only want product information, the online can provide an even better service. The customers can take time to read and understand and to consult others without being rushed into buying.This is not difficult considering the fact most consumers choose product advice, 98% chose product advice, this shows consumers are ready to buy direct. Why pay huge commission for product information and form filling? Worse, the middleman is a nuisance and their practice often unethical, they lie and misrepresent.They don't add value. They are salesmen and conmen in the business to get rich quick.
Claim? very often insurance agents scare the consumers that without them they can't claim.. This is bullshit. You don't need an insurance agent to file the claim. The online company can provide a team of people specialising claims to help the policyholders.This after sale service is practised in other trades and it should no difference from them.
The online model should catch on in Singapore to cut cost to give better value for money.; June 26, 2010 11:55 AM
Anonymous said...: To prevent yourself from being ripped off by insurance agents is to follow MR.Tan' advice. Get a copy of his book and learn what you should know and what the insurance agents won't tell you.
My opinion is stay away from insurance agents with lots of titles especially titles like MDRT, COT or TOT. These are evidences of their unethical practices. These are dangerous people. The titles say alot about them. They must have robbed a lot of people to be awarded the titles.
Do you know how they got these titles?
These titles are commission based. It means they will be awarded the title according to how much commission they conned from their clients.There is no need to guess what products that they will sell and waht will generate high commission. They just peddle these products regardless of the customers' needs.Your goals take the back seat.It is like selling koyok that cures anything.Remember the snake oil salesman? They claimed the snake oil could heal anything. Do you think so? This is what these MDRT conman had been doing to get the title.
Of course, these conmen and women are also known as spear and shield salesmen and women.They claim their spear can pierce any shield and their shield can stop any spear. Sure win, hor.. It is up to them to say anything. But you know it is a lie. They lie and lie and do anything shamelessly for the commission. Whenever their company came out with a new product they will tell you that it is better product or better spear or better shield, the spear and shield you bought are not as good as the new ones.
So you see, that is why and how they got the MDRT, COT or TOT.
Another is the disguise they will use is another title. They will call themselves senior or executive financial consultants when they don't even have knowledge of an iota of finance, not even life insurance. Ask them to calculate, their hands will be trembling and end up with nothing. They will change the subject.
How can the public trust the very people whom MAS licensed to look after your finances.These people are not for you but for themselves. It is like keeping a huge snake to look after your chicken. Sure die...and this is exactly what is happening.Every year LIA released the result of insurance sold is miserable..85% of Singaporeans don;t have $40K in CPF to buy CPFlife.The CPF is littered with losses. People are grossly under insured. People cannot retire. You judge the result.
Ask yourself .. are you on the way to financial freedom or independence? Is your retirement plan on track? if you were to die today will your family get enough money to continue their lives? or your spouse has to go back to work at age 50 and compete with younger people? or your children's tertiary education plan has to be aborted? or if you kenna dread disease you have $30K only because your agent told you that whole life living plan is better with saving?
In our midst lurks the financial conmen and women ever ready to lie to con you of your money and these conmen are licensed to con with impunity.

The Watchman; June 26, 2010 5:29 PM