Tan Kin Lian's Blog: Poor return from Living policy

Thursday, November 20, 2008

Poor return from Living policy

Dear Mr. Tan,

I bought a Living policy with NTUC when you were CEO. Lately, I read that you recommended against the Living policy. Can you clarify?

REPLY
I have just surrendered my Living policy. After paying premium for 12 years, my cash value is still below the total premiums paid.

In the earlier years, the bonus was quite attractive. Later, the bonus was cut due to the economic downturn in 2003.

There was a chance to restore the bonus earlier this year, before the financial crisis, but the management refused to do so. I have decided to terminate the policy as it is likely to provide a poor return over the next few years.

This poor return applies to most life insurance policies issued in recent years. It is better for the consumer to buy term insurance and invest the savings in a low cost investment fund. With the drop in investment values, there is potential for a good return over the next 10 to 20 years.

http://www.tankinlian.com/faq/savings.html

30 comments:

zhummmeng said...: In the past Whole life Living products gave 'decent yield' because of many factors, like low cost of operation, lower salary for the ceos, and senior management and of course the bond yield was high and the cost of mortality was low.Equity markets were good.
Participating product or WL is a function of these factors. These factors determine and impact the value of protection and return.
If you notice consumer products like electrical appliances and others why do you think their cost is getting lower and lower over time. It is because there had been new developments, new discoveries and new methods of manufacturing and the demand for them has resulted in economy of scale..
Can you say the same for life insurance products like WL and endowment? Can whole life products be manufactured in a low cost jurisdiction?
No.!!! Were there any discovery or innovation or scientific discovery that reduced the cost of whole life product? What about the bonds? Have the bond yields gone higher or the equity or other assets return got any better? Has productivity of human capital returned better yield? NO, all costs have gone up, salary for ceo has gone up many folds , senior managers, distribution cost spiral up, investment return gone lower.
Take your living WL product you bought many years ago and compare to the present products. Look at the cost of insurance(in the premium), the protection value per dollar premium and the return, the break even, you can see the products are very poor in term of protection and return(projected 3% after 35 years)
Most people buy WL for both protection and return, right?
There is no way a product can deliver both. You must identify your needs carefully and separate them. Then you can get the best out of them.
WL products deprive you of adequate coverage because it is expensive that you can't afford to address your needs FULLY.If you think you don't need to be fully covered I suggest that you don't even buy it at all.If you think that something is better than nothing then i pity your family. You only please the insurance agent.
The truth is today it is VERY DIFFICULT to justify the use of WL to address needs.There used to be one last use of WL but when estate duty was repealed it was the last nail to the coffin of WL.
I hope I have convinced you why WL products suck. If you look at today's products, eg. like ntuc vivolife you can see the insurance company is desperately trying to hide the rotten return and protection with 'red herrings' to distract you. In fact it is not uncommon that the unethical salespeople use the 'red herrings' to misrepresent the product.
And limited payment product is a marketing gimmick that doesn't add value instead increases the difficulties for more people to be insured adequately.Good for the agents' commission only. Another red herring. Don't be fooled. Back to basic is the still the ideal.
Today WL products have lost all its uses but due to the greed and unethicalness of the agents and the companies and the ignorance of consumers that WL is still around.To gratify their greed insurance agents or consultants are stooping to unethical means to con the consumers resulting in money no enough or protection no enough. This fact is borne out by MAS statistics that even after centuries of insurance selling by the "noble insurance agents" people are still grossly under insured and unable to retire. MAS found out that it has been due to CONFLICT OF INTEREST.The deputy MD of MAS in his address to LIA urged that this must be changed and the commission must be replaced by fairer way of remuneration to avoid conflict of interest.. Averagely people with small family need at least $500K to address dependent replacement income but unfortunately they have about $100K only and this is only one need and there are still others.. (MAS's statistics)
My advice is to cancel and replace it with a living term and cover yourself up to 5 times your family living expenses. Whatever remains invest them in a regular plan like ID7 ideal plan from NTUC BUSiness centre.Remember it is not ID2..; November 20, 2008 10:58 PM
Anonymous said...: In buying insurance policies, you don't know whether you are in for a bad deal until after a long time because cash value is not guaranteed. But at least these won't become zero unlike Minibonds because NTUC INCOME or our local banks won't become bankrupt, no matter what. If these can become bankrupt, Singapore and Sing dollar also finished. So rest assured.; November 20, 2008 10:59 PM
Anonymous said...: Of course NTUc won't go bankrupt but you will ..the policyholders.
Not enough to provide your family when you leave this world because the agents made you buy limited whole life living. You only left enough for your family to bury you.
or the annuity conversion option leaves you barely enough for subsistence living that you need supplementing by foraging the rubbish bins for extra.
How can you buy something that you leave it to chance?Let me tell you your special bonus has gone down the drain in this financial turmoil.; November 20, 2008 11:43 PM
Anonymous said...: Yes , buy term and invest the rest.
Cancel your living policy and buy a term. NTUC vivolife and revosave are rotten products. Avoid them. Avoid the agents disguised as some kind of
consultants . Can't you see through the disguise, the salesman, the product pusher below? Beware of the
product pusher. See the damage the RMs in the banks have done by pushing the products.

Twice beaten thrice shy; November 21, 2008 12:12 AM
adego said...: many surveys shown that at least 80% of investors lost money and can't beat the benchmark.

not many are good enough to handle their own investment.

if u invest into funds, we are exposed to market risk and currency risk (underlying assets), and the 'weighted-average of biz risk'. index funds? not much choices in Singapore. and recent extreme volatility has not done any good to the index funds.

direct into sgs bonds? do yr own stock picks?

unless u have a strategy or game plan that is robust, and u follow it religiously. Even with all discipline and care, there is no guarantee of success.

buy only term?
sounds good and economical, however, there are short-comings that needs to be addressed, such as non-guaranteed premium, highly expensive premium for permanent term plans.
It's still a good tool with some limitation.

At the end of the day, be it WL or BTITR, we won't know which is better for us. Why so?

If we choose Path Z, that will lead us to a cross road of P, Q, R & T, then we choose Q, that lead us to... basically, it's not our call to know what will happen if we choose Q, Y, or H...

simple illustration:
Fund managers buy into Lehman bros, Fannie and Freddie, Citiraya, CAO, China Printing, Unifood, IndyMac, AIG, etc...
These fund will underperform the index, and will cause substantial losses to the fund u bought, do u konw it or have control over that? u owned a singapore equity fund or even a global equity fund from aunty lucy? what if their fund has a few of the above companies? u won't know till it happens!

Another situation...
Theoretically, Plan A sounds good,low cost term ins, low cost investment, and when you implement Plan A for Mr. X, he just screw it up. Why so? becos Mr. X can't handle investment or some money discipline issues. very frequently, we make decision based on emotion.; November 21, 2008 1:25 AM
Anonymous said...: Fool me once, shame on you.

Fool me twice, shame on me.; November 21, 2008 5:49 AM
Anonymous said...: the 4 comments sound like same persons...
insurance is insurance.
FD minibonds is minbond

Friend...if you die, you get pay.
Minibond, if you die, you die. if you fight till die, you may never get any cent back.; November 21, 2008 6:01 AM
zhummmeng said...: 6.01AM,

you have missed the underlying issue.
There is no where that says you don't need insurance.The issue is not just insurance but enough insurance to bury you in the best coffin and also to provide the family until they are financially indepedent.
If you buy WL it maybe enough to bury you only and possibly your family may "hope" all the shits you left behind. Simple reason is you can't afford much let alone enough.
Yes , insurance is insurance and it is NOT saving. If you don't have enough you better don't die because if you do the family will die with you too.

Adego,
with WL the policyholders can screw up too. WL doesn't guarantee
you "forced saving" or discipline. MAS's statistics bear this evidence. Do you know how many WL policyholders hold until 65 years old? about 1 %. The highest rate of lapses is in the first 2 years. Why? there are myriads of reasons..The best discipline comes from knowing your needs and how your needs will be affected if you screw them up and how your family will suffer . This is planning. The advisers help you to plan and act as your life coach. Insurance agents? they sell you and disappear.They know nothing about insurance. They know only commission.
Regarding investment, the policyholder is not on his own. He has an adviser to guide, to coach, to manage. That is why he is called an adviser and not an insurance salesman. He is qualified and is an expert on investment. His advisory service is on going.
Your concern about exposure to Lehman or any toxic assets, any company may have .Insurance companies too have exposure to this toxic. You know aunty lucy had 130 + millions on CDOs? You can't escape. Transparency? Life fund kenna also.If you invest on your own you might have escaped.
I am not against WL if WL can give decent coverage and decent return like in the past. But today instead of coming out to admit the limitations of WLs because of changes in the perimeters insurance companies die die cover up rotten core with more toxic to hoodwink the consumers using an army of greedy unethical salespeople disguised as financial consultants to cheat the public.Both the companies and the agents are playing with the lives of the consumers without the necessary disclosures and approach to the needs of the consumers.
I am writing against WLs and endowment not out of vested interest but to create the awareness of the toxic WLs and endowment have. There is a better way to address your needs and that is separate your needs of protection and saving to have better control. Do you know in WL products every policyholder's interest is dumped into ONE POT disregarding your individual needs,
risk appetite, time horizon and objectives.It is "one size fits all" life fund management. Insurance agents sell and peddle them as " a cure all " product like the snakeoil salesmen at Waterloo or Albert street koyok man.
I hope you understand why I distrust them.; November 21, 2008 9:45 AM
Anonymous said...: I recently surrendered my living policy that has a premium of around $240 per month. When I enquired about getting term to get back the same kind of cover I was quoted aound $170 per month.
The difference is not that much as someone once said it should cost around 10% but it seems it is around 70%? How come?; November 21, 2008 11:51 AM
zhummmeng said...: It is a good time to review your insurance policies. The economic downturn and with many facing retrenchment should give you excuses to throw away those WL and endowment polices that have been bogging you down and draining you financially.You should now look at insurance and saving from a new and true perspective and not from the insurance agents' perspective.
You should look at them this way.
1. What is insurance?
primarily a risk management tool.
What risks do you have?
Among them, the risks that devastate you are.1. Dieing prematurely , at a time when you have many dependents, and to provide for them. 2..the risk of being decapacitated by a dread illness when there are still dependents' expenses and your own.
3. the risk of being decapacitated by disability?, permanent or temporary.4. lastly the risk of living too long
What is Saving? What is investment? Understanding them helps you to take the right actions. What is best vehicle to take to give maximum return at lowest risk. Have you heard of efficient frontier portfolio? Ideally your investment should be modeled on this. Is WL or endowment a good vehicle for your retirement funding, college funding? Can they help you to realise your goals?What are your goals?
If not which is or are?
Remember to engage an expert on these areas. Definitely, i advise against using insurance agents. I am biased. Look , even insurance they have no idea and struggling with, how could they help you? Product pushing is all they know.
Also remember,don't be fooled by a cure all or a one size fits all product. THERE IS NO SUCH PRODUCT.If there are products that make this claim the benefits are at the best very diluted and many of the benefits you don't need but you are paying for them. They are the toxics of insurance. Beware of these products in the market now.; November 21, 2008 12:40 PM
Anonymous said...: Hi Zhummmeng and fellow bloggers,

Thanks for your comments on WL. I have gained a lot from your sharings.

I am a young parent and I am intending to save for my child education. So I asked for quotation for NTUC PayMyUni.

For a Monthly quotation of $268, the sum assured is $50000. At the end of 19 years, the total premium paid will be $57546 and the projected return (at 3.75% investment return) is $77580. Based on this projection, the return is $77580 - $57546 = $20034

For me, this return looks attractive. I do not think that putting $268 per month for 19 years in the bank can yield such returns. Also, do you think that one can confidently make this kind of profit if one is to invest the money himself? STI ETF? Global equities fund?
Please bear in mind I do not have a lump sum of $57546 now but the committment is $268 monthly for 19 years.

Please advice

Man Cheng; November 21, 2008 12:51 PM
Anonymous said...: Mr. Tan,

Need your advice.

Remember when you were CEO of Income, you encourage us to buy annuity.

I am 55 now(female) , I study the annuity available in S'pore. the one from Income is still most attrative as the payout is participating , i.e. payout will be increased if there is profit. BUT iamagine if I place $100k and 6yrs later at age 62, I only get $450/mth, although it MAY increase along the way . The increase is so marginal , a few $ a year.
IN such case, do you think I better put my $100k in Govt 20yrs bond , it gives return of 3.5to 4%. my yearly interest is $4000 (ave monthly $333), at the end of 20yrs, I still own the principal $100k.; November 21, 2008 1:37 PM
siewkhim said...: Kin Lian,

Whole Life par policies cannot give you a decent yield because in the early years a huge portion of each premium payments goes to paying commissions and expenses. In the later years around age 40 and above a huge portion of each premium payments goes into paying for escalating cost of protection (dread disease cover).

Hence even under asset share approach of computing policy values taking actual experience into account, the break even point is likely to be around 20-25 years of premium payments.

Whole Life par is like a long term assurance which give you a return of premium paid after 20-25 years.; November 21, 2008 2:18 PM
zhummmeng said...: Man Cheng of 12.51PM,
Now ask yourself what are you accumulating for , for your child's education fund or insurance?
Insurance is out. By including it you are allowing it to dilute your saving.
You are the payor. The future of the child depends on you. You are the golden goose. Is the golden goose insured? Assuming you are, your protection would include the child's education too, am I right? If you pass on, the child's education is already covered.
Pay My Uni is an endowment plan with a lot of insurance rubbish thrown in to look "attractive". Actually the rubbish is to take your attention away from the more important issue, the return.It is poor. Remember the 3.7% is but a projected and may be just 3%
Alernatively, from TMAsia life another product called College Plus. This product gives you more than PayMyUni because this product focuses on saving without the insurance. No wastage on rubbish.

Mr. Man Cheng, the BEST is to save and invest regularly. I know when you hear the word "invest', it conjures up pictures of losses and volatility. The truth is, with 19 years of time horizon, this product I am recommending is of much "lower" risk than the endowment, wholelife or whatever traditional products that the agents are very keen to promote to you.All regular premium products you only see the cash value after 2 or 3 years. How about seeing cash value after 1 month? How about breaking even in 1 year's time? How about 6-8% return or more? How about realising your goal earlier, ie before 19 years?
Dollar cost averaging and time are used to manage risk .If you are very kiasu you can choose the portfolio NTUC is using for their life fund. BUt I suggest that you use at least a moderate risk portfolio.At 6% return you will get $100K or more after the 19th year.

All these are possible and IT IS ONLY available at NTUC BUISNESS CENTRE. The product is ID7 IDEAL POLICY. Please remember it is ID7 and no other number than 7.
You can also use this product as vehicle for your retirement saving.
All the best.
PS.this product carries no commission for the agent.100% of your money is invested except for 3.5% sales charge and $100 set up cost in the first year only ,compared to 2 years of your premium vanishing into the thin air for PayMyUni or College Plus.; November 21, 2008 5:26 PM
Anonymous said...: 11.51AM,
the 10% is compared to a WL taken up at the same time and at a younger age.Mortality cost goes up every year and slowly at younger age and it gathers speed at middle age. I assume you are middle age. This premium reflects the cost of mortality even if you keep your WL. In other words if you keep your WL only $240-170=$70 goes to saving and as you age lesser and lesser is saved.Your current cash value accumulated is due to the early years when your mortality charge was about 10% of your premium.. If you take up a WL at your age now you may pay up $600 or more for same sum assured.
So the $170 is reasonable.; November 21, 2008 6:12 PM
zhummmeng said...: Man Cheng,
assuming a non lab 4 year course in a local uni is $32000 in today's dollar and fee inflation of 6% you will need about $97K in 19 years' time , just fee and living expenses not included.; November 21, 2008 6:25 PM
Anonymous said...: Dear Mr.Tan,

After paying 12 years still below total premiums paid. How come? I thought you were the ex. CEO then?; November 21, 2008 10:54 PM
Anonymous said...: Mr Tan,

Out of the 12 yrs that you have paid, you were in charge as CEO for the 1st 10years. Is it fair to push the blame to the current mgt?; November 21, 2008 11:29 PM
Tan Kin Lian said...: Here is my reply to Neil:

I do not have the exact figures, but I believe that the investment gain during the last two years probably equal the gain during the earlier 10 years.

What is more important is the approach taken by the management and the board. I believe that the rate of bonus should be as much as possible, subject to prudency.

Other people may think that the bonus should be as little as possible, so long as they can get away with it.

This is the reason why I am prepared to terminate my policies and take a financial loss. I have lost confidence in getting a fair rate of bonus.; November 22, 2008 12:23 AM
Anonymous said...: Hi zhummmeng

If I am not wrong for ID7 IDEAL POLICY, not 100% of the monthly premium is invested. Instead it is only $x-$4 invested. The $4 is for the policy fee which I presume also include some minimal insurance charges

Anyway I just bought ID7 for my child education fund. I did a study and NTUC Spore Equity is quite decent as main bulk (64%) is invested in STI ETF. Management Fee is only 0.65%. Consider very low for equity fund

WG; November 22, 2008 12:25 AM
Anonymous said...: The restructured bonus affects policies taken up since 1993 , so yours is affected too. Since then all the policies' annual bonus is reduced. Can this be the reason why the cash value is under water...I am sure your money in the ntuc's investment is also under water. How much is not known.If there was no restructuring probably you might get more.Blame the new management. Their new products vivolife and revosave too have poor return.
You get 3%(not guaranteed) for vivolife after 30 years.It is a loss after adjusted for inflation.
For revosave, it is even worse. The return is about 1.6%+. I wonder how many people got conned ion this product.I am very sure this product was misrepresented and the customers were mis-sold.
Any way AGM is comimg. WE will grill the ceo and the board for explanation.; November 22, 2008 12:45 AM
zhummmeng said...: I agree with SiewKhim,
buying Whole life product is at the best a refund of your premium for most people. Unless you hold it for 30-35 years you Might get 3% which is about or less than inflation..
35 years? is a long long long time and very few people hold it for so long.
Whole life product is never held for life for 99.99% of the policyholders.Only the RICH can but they don't need insurance.
1.most people need money when they hit retirement age
2.most people never hold to pre- retirement age because along the way there are so many financial crises to cause them to terminate, surrender or take loans.(one is already here)
3.some people die in the forties under insured because insurance agents told them to postpone until they have money to buy WL.
So, why buy wholelife when you won't keep for whole life . You only make the insurance agents fat and lazy.You should cut them off . They are NOT giving you good advice.They should be sued for mis-selling and misrepresentation.
You have wasted money and being deprived of the adequate coverage because the WL has taken so much of your resources.
WL is NOT a saving plan.
WG of 12.25AM has done the right thing. Buy ID7 to save for education funding.It is low risk compared to an endowment or WL, much higher return, transparent, flexible, not tied down, no need to borrow your own money and pay interest(this is the silliest thing) etc.
Hey,make your HARD EARNED money work SMART AND NOT ONLY WORK HARD.
Definitely, don't let the insurance agents just fill forms and push rubbish to you.; November 22, 2008 10:29 AM
Anonymous said...: just to share a real case about my aunt.

she bought $30K single endowment plan from NTUC & GE at yr 2002, the policy matured only last yr Sept. (NTUC projected a higher return than GE).

guess wat? at yr 2007, GE maturity return was $100 lesser than projected, NTUC was almost $1.4K.; November 22, 2008 1:25 PM
Anonymous said...: I have many freinds who stopped their ntuc policy because they cannot service the premium. I ask them why.
They say the agents told them they do not have to pay after the 2 year and they have money to pay automatically. i was shock to hear it.; November 22, 2008 3:23 PM
Anonymous said...: Roger Ng,
that was before the bonus restructuring. Try and see the next 5 years.; November 22, 2008 3:50 PM
Crazy Aries said...: ID7 from NTUC Income allow the policyholder to take up "premium holiday" up to 6 mth if they completed 12 mth premium payment term, the holiday can be extended as long as there is enough cash value in the policy.

I believe the same apply to all NTUC Income ideal plan.; November 22, 2008 5:03 PM
zhummmeng said...: Combine term and ID7 and you get a superior "endowment" package in term of protection and cash value. More importantly you have better control.In the worse case scenario like a financial crunch or retrenchment, you don't need to borrow and pay a hefty 5.5% interest. The cash value is yours to use. Your protection is separate and is unaffected. With whole life it won't be long that it lapses. 99.99% of WL punctured this way and at old age.
The worse products are endowment and anticipated endowment. These are scam products.Today there are many of these scam products in the market, from revosave to prucash and the Maxsaver. They terribly short change you.
Beware, these endowment products can be disguised as something else and given an exotic name.I need not tell you, right?
The ID7 beats them hands down, maximum return. Protection is rubbish. You don't buy it for protection. Don't be conned by the feature.You use ID7 to ACCUMULATE REGULARLY . Want protection buy I-Term.; November 22, 2008 6:52 PM
Anonymous said...: You should cancel it because it is not giving good value anymore since the restructuring. The longer you hold it more you will lose. Consider it lost and restart another plan using the buy term and invest the rest strategy. You will see the the great difference. Cover yourself adequately and invest regularly.
Today all whole life products short change you. Some companies are resorting to covering up the product s with rubbish.Some companies even revive old product and dress it to like new to fool you and con you. Beware of them.
Don't touch revosave from ntuc and also cashback products from other companies. They are dubious products that rip you off. Once in it there is no turning back without big losses. Becareful..Seek advice from third party before buying them. They are like minibond with toxic that are not revealed to you. Don't beleive, ask the so called financial consultant to tell you the return of revosave. Any idea? Up to now , no policyholder has any idea.This is non disclosure and this is unethical and breach of the FAA. Anyway the consultant don't know how to calculate. The shock will come. I urge aggrieved policyholders to report to MAS.
As for vivolife, don't touch it with a 30 foot pole. It is worse than the one you have. Just avoid these products and the greedy agents who peddle them you will be safe.
jaty; November 23, 2008 12:50 AM
Anonymous said...: Not only poor return from the living policy also poor or no advice from the agents. I heard the top 40 agents are all product pushers and would not hesitate to use unethical means to dump the products on you. Not surprised they push product . What else do they know. They only interested to qualify for mdrt and incentive trip these despicable agents.You must avoid them. You will regret buying these products from this type of agents.

concerned; November 23, 2008 7:32 PM
Anonymous said...: sell them off, lah or complain the agents to mas.; November 26, 2008 9:45 AM

Thursday, November 20, 2008

Poor return from Living policy

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