Published in the Straits Times
SENIOR Minister Goh Chok Tong's observations about keeping life insurance coverage affordable
focused on the conventional practice of recommending whole life or savings plans instead of term insurance ('Keep insurance affordable: SM Goh'; Oct 23).
This practice is evident in a finding published by the Life Insurance Association of Singapore, which stated that Singaporeans are under-insured by 67 per cent, or by as much as $329,223 based on average household expenses; when term insurance is, by contrast, far more affordable.
One aspect of Mr Tan Kin Lian's comments on Wednesday ('Two key factors insurance buyers don't know') describes the inherent conflict of interest between a fatter commission and the consumer's immediate protection needs.
Usually, if a proper financial needs analysis is done prior to making the sale, a buyer's required insurance protection may well amount to hundreds of thousands of dollars. Instead, what usually happens in an insurance sale is that the recommended products, while meeting the buyer's budget constraints, do not satisfy his protection needs.
In fact, private bankers or insurance agents who sell savings plans with embedded insurance protection often use the savings elements to attract and keep consumers to a long-term commitment of their budget, thereby depriving them of a future budget for protection needs and giving them the impression that insurance protection is costly.
If responsible advisers recommend term insurance, consumers can easily meet coverage needs without resorting to high-premium, low-coverage products like whole-life or endowments.
Last Friday's reply by Mr Jeffrey Tan, president of the Insurance and Financial Practitioners Association of Singapore ('Choice of insurance plan hinges on affordability, buyer's needs'), omitted an agent's powerful influence on the client's choice.
There are three ways to better police recommendations:
* Agents should be trained to offer needs-based advice rather than just product advice.
* Conduct compliance checks on an agent's recommendations to meet protection needs; and
* Check whether a client who picks a savings plan over protection needs has been given a booklet which tells him about the benefits of term insurance within the free-look period, so he can reconsider his choice.
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