Mr. Tan
Please explain the difference between the "distribution cost" and the "effect of deduction" in the benefit illustration for a life insurance policy. Why is the figure so much different?
REPLY
The "distribution cost" is the amount taken away from your premium during the first few years. Most of it is taken away in the first and second year. The distribution cost is usually between 1 to 2 years of the annual premium.
If your annual premium is $5,000, the distribution cost can be between $5,000 to $10,000. This is the amount taken from your savings to pay commission to the agent and to the agency's manager and other marketing cost of the insurance company.
As it comes out from your savings, it is painful when the consumer realize that he or she is giving so much money away. But at the time of purchase, they did not know about it.
The "effect of deduction" includes the distribution cost, the cost of insurance and other expenses of the insurance company. It also includes the "interest" that could have been earned on these deductions in the future.
Typically, the "effect of deduction" at the end of 25 years could be 10 to 20 times of the distribution cost, This is the powerful impact of the compounding of interest. I have seen "effect of deduction" that amounted to $100,000 to $200,000.
If the policyholder invest his money wisely, he or she will be able to save a large part of the "effect of deduction". This amount could add significantly to the retirement savings of the policyholder.
The cost of ignorance can be extremely high. Read this book to find a better way to invest your savings.
http://c-pearl.com/cart.aspx?ID=19
You can order a few other related books as well from the Pearl website.
Please explain the difference between the "distribution cost" and the "effect of deduction" in the benefit illustration for a life insurance policy. Why is the figure so much different?
REPLY
The "distribution cost" is the amount taken away from your premium during the first few years. Most of it is taken away in the first and second year. The distribution cost is usually between 1 to 2 years of the annual premium.
If your annual premium is $5,000, the distribution cost can be between $5,000 to $10,000. This is the amount taken from your savings to pay commission to the agent and to the agency's manager and other marketing cost of the insurance company.
As it comes out from your savings, it is painful when the consumer realize that he or she is giving so much money away. But at the time of purchase, they did not know about it.
The "effect of deduction" includes the distribution cost, the cost of insurance and other expenses of the insurance company. It also includes the "interest" that could have been earned on these deductions in the future.
Typically, the "effect of deduction" at the end of 25 years could be 10 to 20 times of the distribution cost, This is the powerful impact of the compounding of interest. I have seen "effect of deduction" that amounted to $100,000 to $200,000.
If the policyholder invest his money wisely, he or she will be able to save a large part of the "effect of deduction". This amount could add significantly to the retirement savings of the policyholder.
The cost of ignorance can be extremely high. Read this book to find a better way to invest your savings.
http://c-pearl.com/cart.aspx?ID=19
You can order a few other related books as well from the Pearl website.
2 comments:
Figures don't lie. Now you understand why people join the life insurance indsutry. These people join to help you to save? to help you achieve your life goals? No!! selling life can make for them lots of money!!!The consumers are easy to plunder; the consumers are stupid and willing victims; selling life insurance is so lucrative and there is no law to say how it is to be sold. The more complex the products are the better and easier to sell to the gullible and clueless customers.
Wake up , consumers, you have been taken for a ride . You have been fooled. The stakeholders are complicit in this plundering game.The insurance companies deliberately manufacture complicated products with a lot figures hidden deep in the BIs. They train the agents as middlemen to lie and confuse you into buying. The agents are willing to do this job of conning the public because they are rewarded handsomely, enough incentives to do anything at the bidding of the manufacturers the insurers.
What about the law? There is no law. The law is for show..for wayang to show some 'regulation'..the law is also complicit in this conspiracy. Where in the last few years have you ever heard of any of these insurance agents being sent to the gallow? for mis-selling?
etc.
For self protection, never buy whole life or endowment products,or any products that are called saving plans and require high premium because the high premium means the agents and the company get more .
Ever wonder why the insurance salesmen never told you about term insurance ? obvious, right? They earn the agents peanuts but term insurance is good for you. You see the conflict of interest? Beleive me you, the agents are NOT in the business as santa clause to help you make money....how could they when they want to plunder you and steal your money legally with the blessing of the regulator and their companies.
Trust Mr. Tan. He knows what he is talking. Remember he was the actuary and CEO of the insurance cooperatives.
That is what the insurance companies are taking from you; for the insurance agents a huge commission so that they can be emboldened to do and say anything to get their hands on the commission; for the company a cheap source of capital to pay their CEO high salary.
Consumers have to wake up from the long slumber and open their eyes to see that they are being robbed by these people.
Remember to consult Mr. Tan before committing to buying and insurance products and if you have an existing insurance consult him for a review
to see if you have been conned by your good friend insurance agents.
Also remember, never commit anything when you are being stopped by insurance salesman at the roadshow....rememeber the self protecting phrase....'let me think about it". Remember all these will serve you. One last self protection, never succumb to GIFTs ; they are traps. They are NOT free..you are actually paying for the gifts. These people are not santa clause .
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