Tan Kin Lian's Blog: Is insurance good or bad?

Thursday, October 14, 2010

Is insurance good or bad?

A lady asked me this question. It seems to be a naive question, but it does reflect the level of knowledge of many consumers in Singapore who are not able to get information to form their own opinion and have to rely on advice of other people. Read my answer here.

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2 comments:

zhummmeng said...: We have been trying to tell MAS that 99.9% of consumers have no inkling of the purpose of insurance let alone how they work. For Caveat Emptor to work consumers MUST HAVE good working knowledge of the products, as good as the insurance agents at least otherwise no way can consumers make informed decision.The 1 or 2 hour of presentation is NOT going to educate the consumers and to help them make informed decision. Imagine the insurance agents took years of study and experience yet they are still half baked and clueless of how to apply to help their clients. So how can consumers?
If consumers know, as caveat emptor assumes, why should consumers pay commission to agents for form filling and execute only service.
To be paid the commission the agents are expected to do more than form filling or read the features and benefits of the products to the customers.They should provide analysis and a plan to help their cleints meet their goals.
Alas, all these are lacking and consumers are helpless victims of conmen insurance agents.; October 14, 2010 10:15 AM
Unknown said...: Dear Mr Tan,

I would like to commend you on making your blog so informative and helpful to anyone who wants to learn more about life insurance.

After reading your post on 15 Oct 2010, Is Insurance Good or Bad, I have some queries with regards to what you have posted.

You said insurance coverage "will cost as much as $200,000 over 25 years!" which I do have to say is an alarmingly huge amount.

It was then mentioned by you that this $200,000 goes to "commission that is paid to the insurance agent and the profit of the insurance company".

I am under the impression that commission paid to the insurance agent stops after 5 years as displayed in the table of deductions? That amount usually would amount to a lesser then the stated $200,000 and clearly displayed in the document itself.

If that's the case, then what I understand is that the rest of the $200,000 goes to "profit of the insurance company".

If going by the assumption that the risk of something happening to a person in his twenties is 2000:1 then yes $200,000 is an alarming amount to pay. However, if you are looking at the effect of deductions after paying for 25 years of premium, then the risk would not be 2000:1 anymore and the amount which goes to the company expenses increases as well.

Insurance is about pooling together resources to lower the amount a person has to pay should something unfortunate happen. If he buys earlier he pays lesser premiums. If he buys later he pays more because with age the risk of something unfortunate happens is increased. This therefore scales according to the table of deductions in terms of protection fees also commonly referred to as mortality charges.

Perhaps Mr Tan you would like to address how does the amount of deduction goes to the profit of the company if it is used for mortality charges and to really provide help for those who do need to claim.

The basis of insurance is meant for good. To help people who meet up with unexpected accidents. I do believe in that, but perhaps the more important concern here is how much of the $200,000 are mortality charges and how much of it goes to company expenses.; October 18, 2010 2:46 PM