Tan Kin Lian's Blog: Life insurance can serve a useful purpose

Sunday, November 29, 2009

Life insurance can serve a useful purpose

Life insurance is inherently a good product. It provides protection and encourages savings for the long term.

It becomes bad when too much of the savings is taken away from the policyholder, leading to a poor return to the policyholder, compared to other types of investments. It becomes worse when it is sold dishonestly, without disclosing the true cost to the policyholder or by deceiving the policyholder using half truths or outright lies.

It is possible to design life insurance products to give good value for policyholders and still allow an adequate rate of commission to the insurance agent. It allows the agent to make a honest living and to earn more through hard work, without making the customer poorer.

Some insurance companies practiced fair treatment of policyholder in the past, and even give a good rate of bonus based on what they have earned. This allowed the customer to earn a good rate of return, even after allowing for expenses and profit margin. It is possible to achieve this outcome in the future, if the principles of fair treatment of customers are observed.

Tan Kin Lian

7 comments:

Anonymous said...: Cost and return are inversely related. If cost goes up it will affect return.Like investment if the sales charge is high it takes a higher return to overcome.
2 things you need to understand why
wholelife , endowment or any par products have poor return and protection are the cost of operation and commission to agents and the low interest rate and low investment return..You don't need to be a CPA to know that if cost of operation is high the return will be eroded.
Imagine CEO's pay 10-20 years ago was $15K a month. Now? $80-$100K a month. HOw many times? What about the senior managers? What about the agents' commission for doing nothing but to fill up forms? What about rental, logistics, equipment?
There are host of things whose cost has gone up enormously and while all these go up the return and interest rate and the work of agents never go up. How to give better return and cheaper protection?
Then why insurance companies still want to sell this kind of par products?
These products provide a cheap source of capital and built up the life fund although no income.
In order to do that they have to reward the greedy sales agents with high commission at the expense of consumers, exploit their own trusting policyholders. It is easier to cheat the people who trust you, right?
They have to disguise the products to hide the truth of the products.
Worse the agents will suppress information and try as best as possible not to disclose or to distract the consumers.
How many consumers actually ask for the return ? And waht answer did you get? Is 2.5% after 30 years a good return? Is it a gain or a loss? Is it some kind of joke that you call this saving?
No wonder the baby boomers were played out by insurance agents who told them that insurance could be used to save for retirement.They were shocked to discover at least 60% shortfall.
Wake up to the FACTS that par products are scam and the insurance agents are the scammers who exploit your trust and cheated you.In the first place from day one they never had your interest at heart. They had your money at heart. Anybody on 2 legs is money to them. If these agents are truthful how many are really qualified? Out of 15,000 agents less than 1000 are qualified financial planners the rest are still salesmen peddling products or conmen and women.
Wake up, consumers..now that you have FISCA, consult before saying yes to salesmen .; November 29, 2009 11:02 AM
Anonymous said...: Kin Lian,

Life insurance in general is a risky product. If you lose you job and would not get one quickly, you would cease paying your life insurance premiums since it will be the first item you would strike out to make way to use your savings(if any) to more important bills.

So if you bought endowment/whole life policies or ILP you will either get nothing
or a small percentage of premiums paid when you surrender since you lose you job and insurance has to go first. If you buy term, you get nothing back.

So life insurance especially the par policies and ILP are fact stupid investments. Only fools buy them.

However, if you really need to buy insurance, just buy the cheapest term to say 25 years. The premiums is likely to be at least 1/10 of the endowment.; November 29, 2009 3:24 PM
Tan Kin Lian said...: If whole life, endowment or ILP can be bought directly without the upfront commission, it will be a good product.

The surrender value would be as good as the refund of the premiums paid, plus interest earned less the mortality charges and the modest expenses.

The problem with the life insurance product is the high upfront charges (for commission paid to the agent). If it is kept at a modest level or removed entirely, life insurance is a good product for many ordinary people.; November 29, 2009 5:21 PM
Everlearning said...: The real problem lies with the management level: to pay themselves the CEO kind of pay, and to reward themselves attractive incentives by spending holidays on resorts overseas, etc...

I don't trust these people in the insurance industry because their main concern is not there to help the policyholders.

Life insurance is not meant to end up in this way, but sad to say, the main focus has shifted only to give advantage to the insurance companies and to disadvantage the policyholders in due time.

The non-guaranteed bonus portion is "rightfully" to rip-off policyholders' maturity paid-outs!!!; November 30, 2009 11:10 AM
Anonymous said...: Not many realise that par life insurance products are actually risky.There is no hedge against them being eroded by inflation, poor investment, idiosyncracies of the management, the ceo and host of others.; November 30, 2009 1:41 PM
Anonymous said...: U r right. Over the years you see the volatility of the returns of wholelife and endowment. And the return is NOT YET the lowest or bottom. There is no real return.
Why do insurers still sell them despite the poor return and protection? Why? it is interesting to know WHY.; November 30, 2009 5:14 PM
Anonymous said...: so that the ceo and his senior managers can pay themselves high salary. The premium from these products is invested to provide for their incomes.To bring in the APIs bribe the greedy agents with high commission to con their friends , relatives and their trusting policyholders.Both win and the suckers are the consumers.
Term ? where got so high premium..; November 30, 2009 9:30 PM