Thursday, November 12, 2015

Understand the benefit illustration

Mr. Tan,
Is it safe to rely on the projected return shown in the benefit illustration? I heard that many policyholders had complained that the actual return was lower than projected?are

The real misunderstanding is "outside of the benefit illustration". The benefit illustration is quite reliable, but the insurance agent may have explained the figures wrongly. For example, the insurance agent may state that the insurance policy provides a return of 4.75% on the savings, but the actual return, as shown in the benefit illustration is much lower, after deducting the "effect of deduction".

If the consumer reads and understands the benefit illustration, the consumer would know that the actual return is around 2% at the time of maturity, but would be much lower, and even negative, if the policy is withdrawn before the maturity date.

This article explains how the read the benefit illustration.

In most cases, if the consumer understands the benefit illustration, they will not not buy the insurance policy, because the terms of the policy are unfair to consumers. So, the insurance company will continue to rely on mis-selling by the agent to catch the unwary customers. Sometimes, the agent deliberately mis-sell, but at other times, they might not even by aware that they were mis-selling, as they were trained to "sell" based on the "benefits" which might not be an accurate description of the product.


1 comment:

Anonymous said...

Mr. Tan is right, most of the par products out there give an average of 2% upon maturity. So forget about the BIs and all the crap figures, just take a look at the performance figures of 8 insurance companies as shown in the Sunday Times a few days ago.
The simple average return of the best companies is only 4% and if it is on compounded basis it is only less than 3%. How to give you more? After expenses you are lucky to get 1%.
Surprisingly one cooperative company Mr. Tan used to manage is one of the poor performers. It's simple average return over the last 7 years is only 3%.This means the compounded return is less than 2%. Again how to give more?
So consumers, don't buy these stupid scam products. Invest on your own and even close your 2 eyes you still can get better than these rubbish return of the unethical insurance companies.
It is time to wake up and sack your insurance con insurance agents.

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