Wednesday, May 02, 2007

Power of marketing

Here is an example of the power of marketing, that act against the interest of the customer.

If you are 30 years old, you can insure for $100,000 under a decreasing term plan and pay only $8 a month.

The insurance agent does not offer this product to you. He will tell you to buy a whole life plan and pay $160 a month (ie 20 times of the cost). His marketing pitch is, "if you buy a whole life policy, you can get a return".

The return on the whole life policy is probably 3% per annum.

If you pay for the term insurance separately and invest the difference to earn a modest 5% per annum, you can get 20% more at the end of 20 years. The difference could be higher.

Why does the whole life or endowment policy pay a poor return? This is due to the commission that is paid to the agent. It can take away up to 1.5 years of the premium.
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3 comments:

Anonymous said...

hi Mr Tan,

is there a term plan that insures against critical illness and TDP with similar cost to the above? i.e. $100k coverage for $8 a mth... thks.

May 02, 2007 9:48 PM
Tan Kin Lian said...

NTUC Income has a living benefit that covers critical illness and provide a flat coverage (ie not reducing coverage). The premium is higher than $8 a month.

You can read the FAQ in www.tankinlian.com/faq, "Choice of Insurance plan".

You can also call NTUC Income directly.

May 02, 2007 9:51 PM
Anonymous said...

Dear Mr Tan,

Do you think there is any value of a term life policy that is guaranteed to age 99? I know of a few IFAs who attack term policies which are not guaranteed to age 99; instead they push for whole life or term policies that runs to age 99.

indexfundfan @ indextown

May 02, 2007 10:58 PM

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