Many policyholders bought a "critical year policy" in the belief that they can stop paying premium after that period. They were disappointed to learn that they had to pay premium for longer than the expected period and cannot get the insurance company to honour the "promise". What has happened?
If the policyholder read the actual policy document, he would have found that the word "critical year" is not mentioned in the policy. It was actually a marketing presentation. The insurance agent took the dividends paid in the past and assumed that the same rates would be paid in the future, and also that it was possible to accumulate the dividends to earn an interest rate of 6% per annum.
The actual rates of dividends paid were lower than projected, due to the low investment yield. The interest rate credited on the dividends were also lower than the 6% projection. With both impacts, the accumulated dividends were not sufficient to stop the premium payment.
There was an example of this policy given in my book, "Get value from your life insurance policy". You can buy the book here. You can also learn about some of the other policies to avoid.
If the policyholder read the actual policy document, he would have found that the word "critical year" is not mentioned in the policy. It was actually a marketing presentation. The insurance agent took the dividends paid in the past and assumed that the same rates would be paid in the future, and also that it was possible to accumulate the dividends to earn an interest rate of 6% per annum.
The actual rates of dividends paid were lower than projected, due to the low investment yield. The interest rate credited on the dividends were also lower than the 6% projection. With both impacts, the accumulated dividends were not sufficient to stop the premium payment.
There was an example of this policy given in my book, "Get value from your life insurance policy". You can buy the book here. You can also learn about some of the other policies to avoid.
Because of the critical year saga insurance companies capitalised on this to come out with limited payment whole life products.
ReplyDeleteDoes this benefit the policyholders?
The answer is NO. Why?
The traditional whole life already deprives people of the much needed coverage because they are very expensive. With limited WL it is even worse. Consumers have the mistaken idea that OBJECTIVE IS TO PAY OFF QUICKLY AND BE COVERED FOR WHOLE LIFE.
1.They have lost sight of the purpose of insurance..ie. to insure the risks they carry and to insure adequately and fully SO that they have PEACE OF MIND.
2.The objective is NOT to pay off quickly at the EXPENSE OF ADEQUATE COVERAGE.
3.They are told or made to beleive that they need to keep for whole life especially in old age. This will NOT happen becuase 99% surrender them before or at age 60. Why? they need money to retire. This is a priority and NOT insurance.In fact insurance companies encourage it by enticing them with extra bonus if they convert to an annuity. So you see, the insurance companies are NOT truthful about the whole life feature or the need to keep in old age.The truth is the insurers are not sincere about it.
What if you don't surrender? the cash value will decrease due to high mortality cost compounding.
What if you keep? You look towards CLAIM and sacrifice cash value.
Which would you choose? 99% will choose to surrender for cash for retirement.You need money, right? You can't borrow to retire, right?
So you can see limited payment products are to con you into paying more money upfront. The future benefits are rubbish.You sure to cancel within the payment term because insurance is NOT your only need.You will find it burdensome.
My advice is to insure your risks adequately..To save , take a low cost vehicle like RSP offered by many portals.
Avoid insurance salesmen.They can't help you. They only want to earn a commission from selling A PRODUCT to you..It doesn't matter what is the product so long it is a product that earns them high commission.
Please wake up.Whole life products are NOT protection nor saving plan.
For your own sake please don't fall for all those latest early payout Critical Illness plans. Theoretically they sound plausible. The truth is it is hard to claim . Why is that so? It is hard to discover 1st stage. You don't critical illness plan just for that purpose, right? More importantly , have a H&S medical plan. This plan will take care of the cost if it should be detected.The probability of discovering it is 0.005%. So, is it worth it? Have an H&S as an all ready standby plan.
ReplyDeleteA concerned adviser(not a salesman)