Tan Kin Lian's Blog: Yield on life insurance

Thursday, July 01, 2010

Yield on life insurance

Some people wondered why I write about the bad points of life insurance, when I had headed a life insurance coperative for 30 years.

Life insurance can be a good financial product, if it provides protection and allows the policyholder to get a fair yield on the savings. It becomes bad only when the insurance company give a poor yield to the policyholder through high charges for commission, expenses and profit.

In my book, Practical Guide on Financial Planning, I gave a benchmark on the "effect of deduction" for various durations of the policy. If you find an insurance product with an effect of deduction that is lower than the benchmark, it is a good product. If it exceeds the benchmark, the products should be avoided.

So, what is good or bad, depends on the pricing of the product and the net yield to the policyholder. When I headed the cooperative, I made sure that the policyholder gets a good yield on their savings.

Tan Kin Lian

6 comments:

Anonymous said...: In today's consumerism and throwaway society, 90% of people cannot differentiate between price and value. Value is both objective and subjective, but too often nowadays, people use only subjective and emotions to derive a valuation figure. Such as paying $80 for a branded shirt while a similar but non-branded one costs $40, and the actual cost price to make both shirts is actually $4.

For e.g. the Istana is probably the most prestigious landed property address you can stay in Singapore. But would you pay US$100 billion for the property? Is it worth that value? What is your projected capital gains and yields from redevelopment and rentals? Most people will just give up at this point.; July 01, 2010 1:48 PM
Anonymous said...: The greedy agents want high commission but in return give lousy work . This is what puts off people. No value for money. They are only interested to rob consumers by conning and cheating.; July 01, 2010 8:08 PM
Anonymous said...: Never never believe the insurance agents that the whole life and endowment are saving plans. They are losing plans and very poor as a protection plan.
A good saving plan MUST be able to give at least a decent 2-3% above inflation . Eg if inflation is 3% the return must be 6% otherwise no real wealth is created.
A good protection plan must be very cheap and can cover you till 60 years or when your responsibility is over. At this age a medical plan and NOT necessary a critical illness plan and the money saved is for self insurance.
So don't listen to insurance conmen calling themselves financial consultants. They are not qualified and they don't have your interest at heart.; July 02, 2010 1:31 PM
Anonymous said...: As far as the insurance agents are concerned enough protection means you have enough budget to buy wholelife insurance. And when they review or want to sell another wholelife next time your existing is now not enough so you need to buy some more. In other words they say whatever they want. They have snake tongue.; July 02, 2010 3:09 PM
Anonymous said...: "I recently heard about a case of a young and single gentleman with a salary of $2,800 and expenses of $1,900 being recommended by an FA rep of a $800/mth ILP and a higher cost term insurance of $100/mth. This adviser squeeze him dry to nearly $0 personal savings, citing that he can stop his ILP anytime without highlighting the cost of liquidity and without considering the person short and mid term financial needs. When he was advised to stop this high cost ILP, he said, “it should be okay, my adviser is a well known MDRT Life member. I trust him!” My jaw dropped on hearing that…"

The above anecdote is adapted from another finance and insurance blog and this story is common in the industry about agents who are MDRT , COT or TOT. They are so unscrupulous and ruthless in their dealing. If they don't, how do these mdrt , cot and tot agents qualify for these dubious awards? In fact many fellow agents have warned against these agents with such mdrt awards on their name cards to be careful. These awards are evidence of what they would do to you. They are NOT interested in your finance but their own.
Everyone should know that these awards are given to insurance agents based on how much commission they earned or conned from selling the insurance products.So what kind of products you think the agents will sell you? Do you think the agents will put your interest first or theirs first? Do you know how many products do they sell? Only 3 products they will push .All of these products have one thing in common and is they carry high commission, the above is one of them. These products are whole life, endowment or anticipated endowment aka cash back or dividends or coupons, regular ILPs. They are sold as one size fits all. Or they are sold as cure all products. Or they are sold as snake oil or koyok products. The mdrt insurance agents presentation is akin to the spear and shield salesman or conman's pitch. They are always right.
As consumers, beware of the ruse by these mdrt agents. They may look sucessful because they earned a lot of money from your commission but they earned them UNethically and unconsceintiously.They are more like successful conmen and women. This is the reason why the mature markets like US, UK and Australia are banning commission because commission skews the product recommendation and always against the buyers who will be eventually saddled with rubbish products whcih buyers can't terminate without losses.They are long term and they are loaded against the buyers for long term and they work in favour of the insurance companies. Do you know why insurance companies want to sell these products although they are well known for their VERY POOR return and expensive protection? The truth is these products provide them with guaranteed LONG TERM income and revenue and cheap source of capital. You don't own these products but ONLY when you terminate or the plan matures (endwoment)and you lose.
How to overcome this.? US , UK and Australia think the evil behind this is the commission. Logically remove the evil, ie the commission . Another area is to tweak the entry qualfication to make it for serious people to make this a career and not for many ah beng , ah lian ,tom dick and harry , retrenched receptionists or secretaries or engineers or security guards to join to try or to join to get rich quick. The entry level is tertiary qualfiication in financial planning like other professions.; July 02, 2010 8:20 PM
Anonymous said...: It is MAS's fault. MAS has been talking about insurance agents performing like the doctors but MAS NEVER pursued further.The financial doctors died sometime ago. It is sad.
Do what is right is NEVER popular with the cheats, whether companies or agents. The consumers will continue to suffer in silence and in most cases they don't even know and be exposed to the conmen and charlatans insurance agents.
Unknown to consumers they are always sold a ' Sultan Fish" of $1200 which price they have never been told.At least, the sultan fish sold at RWS was discovered quickly and damage was not so extensive as it is still arguable on the ground of non disclosure of price upfront..In the case of life insurance it will be years before it is discovered that you are taken for a ride.
Although the FAA is disclosure based it seems there is no such requirement in reality. MAS didn't send out to audit the companies, didn't check by calling the policyholders, didn't send out mystery shoppers, didn't police and no enforcement. This is real sham.This is conspiracy.
Did MAS know that 9.5 out of 10 insurance agents don't even gloss through the Benefit Illustration quaotation page by page? Did MAS realise that all life insurance deals were NEVER done because the consumers had a good understanding of the information and decided based on informed decision? It is TRUST or other reasons but NEVER ON INFORMED DECISION. Consumers can't, not even a customer who is a banker.
So what disclosure is MAS talking about.Give the a toilet cleaner a 30 page BI and ask her to read and made a decision. Rubbish. MAS MUST make the insurance agents accountable and liable for the products sold on the REASONABLE BASIS and not on the customers' " I love this product, hor" or "I want it wah" or " my mother says I must have this product, leh"..etc.
Having said all this, nothing happens and changes if MAS does nothing about enforcement..
Do the right thing and fear not the powerful who might be in your way.; July 03, 2010 10:48 AM