Tan Kin Lian's Blog: New life insurance products

Thursday, June 24, 2010

New life insurance products

Many new life insurance products introduced in the Singapore market recently provide a poor deal for customers. It is difficult for the customer to calculate the yield on their savings, as the new products offer cash payback at certain intervals.

The products offer a poorer yield compared to the traditional products (which already provided a low yield). To get the cash payback, the policyholder has to pay an additional premium that is at least 10% more than the payback. For example, if the cash payback is $2,000 a year, the policyholder has to pay an additional premium of at least $2,200 and get the cash payback only the second year only (i.e. no payback in the first year).

Does it make sense for you to save an additional $2,200 a year to get back $2,000? It does not, but the insurance agent is trained to tell you that this is a policy that gives you cash back!

There are other products that require you to pay premium for a certain number of years and pay back the benefit over a few years later. It is quite complicated to calculate the yield, but the yield is quite low (from the few examples that I have seen).

The only way to know if you are getting a fair deal is to look at the "effect of deduction" and the "distribution cost" shown in the benefit illustration. Although it come is many pages and is hidden among a lot of other distracting information, you can ask for these figures to be shown to you, as they are mandatory. You should also read my book, Practical Guide on Financial Planning to learn how to interpret these figures and to get the benchmark on what are the fair figures.

Tan Kin Lian

14 comments:

Anonymous said...: today is the big day.

I wish to be the 1999999 or 2000000 person to visit your website

all the best; June 23, 2010 11:42 AM
Anonymous said...: that day i read from papers that health minister blog very popular got many people visit. if you look at tan kin lian blog it is going to reach 2 millions visits. thats even much much more popular. very spectacular.; June 23, 2010 11:56 AM
Anonymous said...: haha.

I am the 1999299 person.

quite lucky as well got som many 9.; June 23, 2010 11:59 AM
Anonymous said...: Even worse for such cash back policies is that many so-called financial consultants will even tell you that the cash backs are interest payments from the policy, which do not affect the principal value of your accumulated premiums, just like FDs or bonds.

The freaking truth is that these cash backs are taken out of your premiums and accumulated cash value. Insurance companies love you to take these cash backs becoz they no longer need to grow the value for you. You are actually losing the compounding effect. And the best part is that insurance companies charge you higher premiums just so you can get lower returns.

The companies get higher profits and bonuses, and the agents get bigger commissions. You? You get less than 2% p.a. for a 10-yr cashback policy.; June 23, 2010 12:13 PM
Anonymous said...: The whole idea of cash back is to confuse the consumers.Imagine the Executive financial consultants cannot calculate and know Fxxx about this products how do you expect the consumers to understand.
Consumers may think the cashbacks are interest earned. They are actually your own money returned to you as cash back. The agents are silent on this. The agents were trained not to mention anything until you ask. Tell the customers those that 'sound' good and suppress the risk.
One so called social enterprise launched another scam product recently and many consumers were conned into buying. These consumers will be in for a good ride when they find out that the projected return will not be delivered after 10 years.These consumers deserve it for trusting their agents who are nobody but at best salesmen if not conmen and women.It is madness that MAS is closing their eyes on this very poor advising.Don't know whether to pity the consumers or not.; June 23, 2010 12:52 PM
Anonymous said...: I have read articles in magazines and papers on interviews with some people regarding their approach to savings and wealth.

Two comments from them stood out.

1. I don't save for retirement because I already bought insurance.

2. I am richer dead than alive.; June 23, 2010 1:47 PM
Anonymous said...: Yes, it may be ambiguous to the customer about such endowment plans but this is what insurance companies are doing. These companies main business is not about investment but for wealth and health protection. Why cant you just differentiate this? I noticed you been harping on the investment side of insurance but in essence, insurance is all about securing the unwanted mishaps of the future..; June 24, 2010 11:40 AM
Tan Kin Lian said...: Reply to 11:40 AM

The unwanted mishaps about the future should be covered by a 25 year decreasing term assurance, with a premium of less than 1/20th of the premiumt that is being paid for "investment products".

The savings of the people should go into investment products that offer a decent rate of return, that is higher than the rate of inflation. The gain should not be taken away excessively by intermediaries (i.e. agents and insurance companies) and leave the consumer with a raw deal.; June 24, 2010 12:12 PM
Anonymous said...: Anon June 24, 2010 11:40 AM,.

Mr Tan is NOT harping but WARNING people against insurance agents peddling par insurance products as saving plan.This is exactly what those unscrupulous insurance agents are doing for their unscrupulous insurance companies.
Whole life products are NOT insurance products for protection either. So whether they are SOLD as protection or saving the real MOTIVE of par products is to provide PERMANENT income and revenue to the insurance companies and to achieve this goal the companies pay high commission attractive enough to make the greedy and charlatan insurance agents bold and daring enough to lie, to misrepresent, to cheat and to stoop to anything to con their own policyholders, friends , relatives and siblings.
Look, the cheapest means to insure yourself is buying pure term insurance and to save is invest in an investment vehicle that gives the best return at the lowest risk.
This is how wealth is created and wealth is protected.
These are generally 2 most important goals of consumers and NOT those fancifool lifestyle craps benefits new products claim.
These new products are designed in such a convoluted ways to confuse and to con the consumers and to hide the rotten core.
If you are ever pitched a par product by ANY company ask them why they are pitching you this product and how much commission they are paid for this product?. What is the return of the product after 20 years? If they cannot answer you or avoid answering you , terminate the meeting or run as fast as you can.
Remember any return 3% or less is rotten after 20 years.
For existing policies ask your agents to explain another time about the coverage adequacy and the return of the products. First you will be shocked to know that they cannot answer you or too fearful to answer you because they conned you in the first place into buying them.
Buyer beware of these conmen and conwomen in your midst. They may LOOK respectable until you get conned that you realise your so called trusted, very polite, sincere and obliging insurance agent is a thief and conman in disguise.
Remember the case of an insurance agent who conned his own brother and was reported in the press?
Hey , when it is about commission ANYTHING the agents are willing to do.So now you know why these new products although rotten but still can be 'SOLD'.. remember it is NOT BOUGHT because consumers or existing policyholders don't know how to buy. This the danger MAS seems to be blind . Wake up, MAS, before more people get conned.

The Watchman; June 24, 2010 2:10 PM
Anonymous said...: Among all plans, Endowment plan is made for maximum returns upon maturity. Right? WRONG!
My mom just received her payment from a matured 15 years endowment plan. To our surprise, she received LESS than the total premiums she paid over the 15 years period. Moreover, she paid the premium on yearly installments which should have the least cost. We are disspointed.; June 24, 2010 2:41 PM
Anonymous said...: It is too bad for the consumers.

A lot of people confused insurance protection with savings returns, which is also partially helped by agency marketing tactics.

If not, it would be hard to sell products because nobody believe they will die early or get sick seriously.; June 24, 2010 4:07 PM
Anonymous said...: Anonymous June 24, 2010 2:41 PM,

you should report to MAS that your mother was conned by the agent and the company.
Endowment is 'supposed' to be a saving plan because its protection is very low.
I am surprised to hear this. Not only you there are many who suffer the same.
Mr. Tan should organise a rally at Hong Lim Park for consumers who are conned by insurance companies and the agents. This is to allow them to exchange notes and for the press to know how the insurance agents and the companies are getting more despicable, not transparent and conning the public with complicated features and dubious benefits.
Yes, a gathering of policyholders who kenna conned at Hong Lim Park.; June 24, 2010 11:01 PM
Anonymous said...: My favourite question to insurance agents is: Please decouple your insurance policy and tell me how much I am paying for insurance and how much I am investing. What is the liquidity premium you are paying me for locking up my savings for nearly 20 years. That is in response to them saying I can earn 5% instead of 1% at the bank.; June 25, 2010 12:07 AM
Anonymous said...: You mean there are people out there who still believes in insurance???; June 28, 2010 4:30 PM