Saturday, October 17, 2015

What to look for in a benefit illustration

Mr. Tan,
An insurance agent tried to sell a life insurance policy to me. I asked him to explain the benefit illustration to me. He was at first reluctant, but he did it with some effort.
I found the explanation very confusing. There were so much detail, such as how the insurance company invested its funds.  He explained the different percentages invested in different types of investments. As I am not an investment expert, I do not know if their investment policy is good or bad.
I do not know how to interpret the information - why they earned a good return in some years and a poor return in other years.
After listening to him for one hour, I am still confused. I don't know if I should or should not buy the policy.

There are two items of information that are relevant for your decision.
1. Distribution cost
2. Effect of deduction

Ask the insurance agent to explain these two items to you. Also, ask them to tell you how much is the distribution cost, and who pays for it. It is actually the amount that is taken from your premiums. The amount is usually very big. Ask yourself, if the insurance agent ask you to pay a fee equal to the distribution cost, will you be willing to make this payment?

Ask the agent to explain the effect of deduction. Ask him to explain why it is so much more than the distribution cost. Ask him to explain how this effect of deduction impact on you, the customer.

If you are still confused, you can buy this book and read an explanation.


Anonymous said...

In the last 5 years the best average return earned by insurance companies was 7% and the worse was 5%. Surprisingly the worse was by a social enterprise company and yet this company advertised using old data of Mr. Tan's time to mis-lead the public that in the next 25 years it could deliver 5% return for their par products. Although there was a disclaimer it was in nano size print which needs an electron microscope to view it.And worse contradicting themselves, their new products claim that they could give only UP to 3% in the 25 years . Now which is which? "UP to 3%" means it is not guaranteed, right?.Is 3% good? Is it above inflation? Is real return created? The answer is a BIG NO!!!!!The real return is NEGATIVE!!!The earlier you understand it the better so that you will not be conned by the incompetent salesmen disguised as "financial consultant' to mis-leading you into beleiiving that they are experts in finance/insurance ..They are not. I don't understand why MAS cannot arrest or charge them as CHEATS. An impersonator is a cheat, right?
To protect yourself , NEVER , NEVER decide immediately and not until you have consulted a second opinion like independent adviser ,MR.
Tan. Remember to take your time just like you would research for the best vacation package and insurance is much more important.Don't give in to pressure. If they do put pressure, stop immedialtey and run as fast as you can because this salesman is desperate and he or she might be a conman or woman.
Generally , all the insurance companies are NOT to be trusted especailly when the products need a salesman to push it. And as you experienced it, even after 10 hours and not just one hour you will not be able to digest the rubbish info and make sense of them to make an informed decision, right.
It is unfair of MAS to say that customers can make informed decision if there is ample 'disclosure'. Even the disclosure are facts it is still not fair to the customers. Remember the agents take many months to understand and pass an exam , how can a customer is expected to understand and digest and 'pass' a presentation in 1 hour?
MAS, be realistic.The onus should be on the salesmen to make it right.

Anonymous said...

I agree this so called new kid ,social enterprise is different from the yesterday years cooperatives under Mr. Tan.
It has made so different from the past'; it is made lousier; return is made lower; products are made lousier., if this is what it means when it says it is made different. Hope the life of its customers are not made rotten ,just to be different.
Sure , everything is made different now, from the agents to the products they all have gone south. What a pity for a former cooperative to become like this. It should have become the best in all areas but alas,they have not. It has not moved but still stuck in product peddling mode and agents no desire to upgrade and be more professional.
Wonder, what the future holds for this once a upon time great champion of the man in the street and workers.

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