Saturday, December 29, 2012

Danger of stopping premium payments

Ms Koh (not her real name) bought three life insurance policies in 2001. The agent told her that she can stop paying premium after 10 years and the policy will still carry on. After 10 years, she stopped paying the premiums.

When she enquired about the status of the policies two years later, she was shocked to learn that the premiums were actually being advanced as a loan charged to the policy and is accumulating interest at a high rate. The customer service staff told her that the policies will reach zero value after a few years, due to the mounting loans.

She was shocked that her premiums of more than two hundred thousand dollars could become zero. She cancelled all of her policies.

Ms. Koh might have been mis-informed by the customer service staff, but the service quality was bad, slow and unreliable.

When the agent sell the concept of stopping premium payment after the policy has acquired an adequate cash value, the agent did not explain clearly how it worked or that the "critical year" depends on many factors. They just wanted to close the sale with some vague promise, and let the customer and the office staff face the problem many years later.

4 comments:

zhummmeng said...

It is not surprising that Ms Koh was a victim of insurance agent who told her lies and lies about the product.
Everybody is being misled that wholelife products are saving plans and they own the cash value.Cash value is not owned by policyholders. If it is not why call saving? Why need to borrow and pay ah long interest rates? The interest rates are not low, hor. Even the bonus rates given by the company cannot meet them.They are as high as 8%. Do insurance companies give this kind of return?
The truth is wholelife is MOST lucrative product to the insurance companies.The agents are given very high commission to push them.
All in all the agents receive 160% of your premium on this product. That is why MAS wants to cut it down . It has been proposed that wholelife should the agents 50% in total commission and spread over 5 years.
Whole life product is full of traps and not told to you. The moment you sign on it you are held hostage for life or until you terminate it. But the agents will try to discourage you by telling you that you lose the coverage. This scare tactic is powerful because it can scare you to hold it and you pay and pay to make the insurance companies rich....and in some companies agents are paid 5% each year to discourage you from cancelling.Who is paying the 5%? YOU, the sucker customer.
Don not touch wholelife , regular ILPs, anticipated endwoment and all endwoments with a 10 foot pole.They don't add value to your financial life.
Don't be the cash cows of insurance agents and the companies.

T Lee said...

It is pitiful to hear this kind of stories, because I have also personally come across this type of situation, whereby an agent tells the clients that this so-and-so product doesn't need any payment after retirement age (even though they can be like 50+ years old now). Problem is, these are traditional whole-life products, not limited premium products!!!

The agents (some of whom have CHFC, CFP, whatever fancy titles) calculate the premium payments based upon projected figures from the BI, and propose to the clients to terminate the policies at a certain age, when the cash value is such-and-such.

I find this worrying because of 2 major factors. Firstly, that these figures are merely projected. Regardless of how you put it across that the company has been doing well all these years, it is hard to predict how the company or the economy will be doing 20, 30 years from now. Secondly, will the agent be there 20, 30 years from now to help advise the client? Will the agent even remember what he/she said?? If you are not in the line decades from now, and the client forgets what you said (99.99% chance they will forget about this so-and-so cash value and when to terminate etc.), then you will be holding on this to this policy, leading it to policy loan, and in the end, get back little or zero returns. When the promise of a whole-life products is that you get back your premium paid, how then can you allow the product to have no returns?!?! Would this not make it an impossibly expensive term plan?

zhummmeng said...

When you stop premium payment there are 'killers' stealing your cash value. The incremental mortality charges and the compounding interest rate.
The mortality charges increase at greater rate when one is old. The increase eats away the cash value.
The compounding interest rate is even more corrosive and it depletes the cash value even faster.
Those CFP and ChFC agents are worse than those salesmen if they choose to practice like them. It is like a policeman breaking the law.They should be condemned.

look4kc said...

Nowadays banks and insurance companies are like crocodiles with wide opened jaws.
Thanks to the capitalist system and companies growing too big to function at all beside cooking their own books.
The world has turned upside down by greed, glory and goofy.
Wonder our very own CPF retirement account money is still there for us to draw out or draw down.

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