Monday, May 04, 2009

Terminating existing policies

Dear Mr. Tan,
I read in your blog that you have cancelled a few NTUC policies recently. Can you explain your reasons?

I have stopped full time work and my children are grown up. I do not need the coverage under the life insurance policies now.

I could keep the policies as an investment, but I found the return to be quite low. In recent years, the investment yield has been rather low and the expenses incurred by the NTUC Income  have increased significantly. This has resulted in a severe cut in the bonus rates payable on the policies.

Even in a good year (e.g. 2007), the bonus distributed has not been commensurate with the good results. I have lost confidence in getting a fair return and have decided to terminate most of my policies.  I can get a better return by investing on my own or in a low cost unit trust.


TEA ENG PENG said...

Dear Reader of Mr Tan's blog,

I think most people gave up their life insurance policies for the reason of low return and can be better off by investing themselves.

I would just like to highlight the fact that insurance is never a good investment tools in term of cash return but it is definitely the best return when a claim occurs.

If you are having a pure wholelife plan without critical illness, then you should consider if you wish to leave a legacy for your next of keen or charity with your insurance proceed. If not, terminate it and spend or invest the cash value now might be the right choice.

If you have a critical illness coverage, you might still want to keep it if there is no real need of cash. No matter how well you can invest, insurance is still the only instrument that provide the immediate lump sum with a fraction of premium.

I use my own insurance program as an example. I started my 1st critical illness wholelife plan with NTUC at the age of 17 for $50k coverage with the initial thought of better return than leaving my saving in the bank. As I grew, I realized the bonus was not getting a fair return like what Mr Tan said but it is still better than the bank return. My premium is around $900/year, and now I'm 35, so 18 years, I would have contributed $16,200 and if there is a claim, I would get back more than $60,000 with the yearly bonus declared.

My challenge to you is where can I find an instrument to guaranteed me return of $60k in the event of my death or critical illness with $900 of yearly investment?

I am not against buy term invest the rest as my own insurance portfolio is also with 80% of term plans. My objective is to provide a neutral opinion for your reader's consideration rather than hearing from one side of the story.

We are all brought up differently and have different circumstances so what other people are doing might or might not apply to us. Know yourself is the best investment for your decision making.

P.S. You must be savvy and discipline enough to invest the rest or you might actually be spending the rest which you will be better off not terminating your wholelife plan.

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Falcon said...

I have also terminated a S$100,000 living policy from NTUC Income recently. I terminated it because I find the new management is not pro old policyholders like myself. I also saw my two education policies not meeting initial projections by around 10%. I find that I can no longer trust NTUC Income to be acting in my interest. This has been confirmed by the arrogance and high handedness of the new CEO and his handpicked lieutenants which I experienced in the last two years. I have to act in my own interest and am happy to report that on my own, the funds have been well utilised and seen very good growth of more than 25% when I invest it on my own. This is much more than the unclear and ambiguous returns, if any, if I leave it in the policy. Of course, I have lost the opportunity to be covered but given the nonsense and stress that I received from NTUC Income when the policy was in force, I think I will lead a healthier life since I cancelled it. In fact, my blood pressure, which was 140/90 has become 120/80 since I cancelled the policies and invested it in Gold and some equities. Some good has come out of the change in management in Income, it has made me open my eyes and more aware of the need to protect my own interests and to lead a healthier life rather than depend on an insurance company to insure my health and life.

zhummmeng said...

Tea Eng Peng,
you must be new bird in this trade and what you said seems to come straight from the rubbish materials rookie agents learn.
The best return comes from term products. For a fraction of the whole life premium you can get 10 times the coverage. Whole life coverage is sheer waste of money and only unethical, unscrupulous insurance agents push them them to earn high commission.
Who is savvy and disciplined?
The insurance agent themselves are NOT savvy and are incompetent you expect the consumers to be savvy?
What is an adviser for?
I am talking about adviser and not insurance agents.
An adviser is a planner and is a life coach . He is with the customers always until sacked.He provides the expertise and helps in the discipline to see until his clients achieve their goals. That is what an adviser is for. He is not some salesman who calls the client to chit chat rubbish and things non financial and also calls when there is a new product to sell. A TRUE BLUE FINANCIAL PLANNER DOES NOT DEPEND ON NEW PRODUCTS, PROMOTION, INCENTIVES AND BUT HE CALLS TO CHECK AND REVIEW AND FOR CHANGE OF NEEDS.
With insurance agents protection always no enough and saving always no enough too.

TEA ENG PENG said...

Dear Zhummmeng,

I agree that the best return comes from Term products when it comes to claim.

That's why I have also mentioned that my own insurance portfolio is made up of 80% term insurance. There is still 20% wholelife which I have bought in my earlier years which I will not surrender myself but I never mention others should follow suits.

The key message here is that everyone should be aware of their own situation and need to make an inform decision rather than follow suit others decision that could be due to certain bias.

Afterall, not all will be lucky to find a good adviser or perhaps you can leave you contact for those who wish to engage your service?

Hope that's clarify and thanks for your comment. All the best to you! Cheers!

I.H.I.S said...

Dear zhummeng,

I dont agree with you saying that whole life coverage is sheer waste of money, unethical, something unscrupulous agents only sell etc etc.

While I agree the commission for such a policy is very high and returns are low, lets not forget you are paying the same amount of premium every year/month throughout your whole life.

Firstly compare this: the total amount of premium you have paid for a whole life policy for 45 years (buy at age 20 till age 65)and the total amount of premium you have paid for a term policy for 45 years. I would safely say the total amount of premium you will pay for a whole life insurance for 45 years is cheaper than the term policy. Premium of term based on age band remember?

Secondly, the returns of an investment product is NOT GUARANTEED AT ALL. A portion of the returns for a whole life policy is GUARANTEED. Its little, but at least its definitely yours. If your client is VERY risk adverse, surely you wouldnt want to recommend an investment product right. Again, it all depends on the client's profile and his needs.

Now you claimed that "an adviser is a planner and a life coach, he is with the customer until sacked." Based on this statement, I dont see how you can be a true blue financial planner. What you simply implying that once the client loses a job, he will face financial difficulties and once he lapse the policy, the adviser-client relationship ends.

First of all, GOOD OR BAD TIMES, the agent must always be there with the client. Even if the client has already passed on, the agent should always in contact and care for the family.

After all, you said that an adviser is a life coach. No matter what happens, relationship between an agent and client is for life.

P.S. Correct me if I'm wrong, but it seems like you have prejudice against the whole population of insurance agents. I agree there are always black sheeps around, lets not forget there are many insurance agents out there who are truly sincere and helpful.

Falcon said...

Don't be too sure that you will not surrender your whole life insurance. You are probably still young, wait until you are in your forties or fifties and see that your whole life bonuses have been cut left and right then you will have second thoughts. When I was young and first bought my whole life I also thought I will not surrender my policies because they are for my old age. Things changed, management changed, policies changed. It took me over twenty years to learn my lesson the hard way. The best way now is to invest on my own. I invested in the rally recently and got some pretty decent gains which I will never get from life insurance if I left it there and did not cut my loss with NTUC Income. Now why would I not make triple digit gains annualised but instead wanted diminishing single digit gains if at all? I never saw that when I was young, now I see it and realise what I did not know then. Yeah, now I do not follow biased advice of agents who are motivated to earn my commission. I now ask myself why a person is giving this or that advice. If there is money to be gained, then I call that biased advice. If there is no money involved, like what Mr Tan Kin Lian is doing, then I call that sincere advice.

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