Tan Kin Lian's Blog: Policy loan

Wednesday, December 02, 2009

Policy loan

Most life insurance policies allow you to take a loan against the cash value of your policy. You have to pay an interest rate, which is usually 6% to 8% per annum.

The savings in your policy earn a yield of around 2%. You are therefore paying an additional interest of 4% to use your own money. This is a bad deal.

To give a fair deal to its policyholders, the insurance company has to reduce the interest rate on policy loan or give a higher yield on the savings. A fair spread should be 2%. You can find out if the insurance company is treating you fairly by asking about this spread.

20 comments:

Anonymous said...: This is the biggest booby trap the insurance agents never told you and neither it is warned in the benefit illustration.They told you it is a saving plan. You are saving for retirement or whatever crap. During emergency you can use it..period.
To us ordinary folks as we understand, saving is a slow process of accumulating some fund for later use.
The agents never told us that when we want to use we have to borrow..BORROW?? borrow our own money?? and pay not only a token or nominal interest but a hefty interest rate of between 5.5% to 8% depending on which insurer.This is ridiculous, right?
Worse, they, the agents, will tell you don't cancel but borrow becuase you need the protection..Now, you are sandwiched between the devil and the deep blue sea.Cancel it, you don't have protection...continue it , you have to pay the insurer exorbitant interest rate to boost their life fund return and they are now investing in you .It is collaterized, guaranteed return to the insurer. Do you get any gaurantee from the insurer for the paltry return on your policy?
You see, the odds are stacked high against you.No one told you about the dangers, neither the agents nor the insurer. It was a conspiracy to trap consumers. No wonder it is a very lucrative business and they die die want to sell wholelife and endowment products despite lousy return to consumers. The consumers are seen as suckers. Consumers are held to ransom, to hold their policies until the insurer thinks it is enough time to cancel it and not advantageous for them if you continue to hold. They have a nice way of telling you to cancel it, 'convert to annuity we pay extra 5% ". The truth is they don't mind paying you extra 5% becuase death claim will cost them alot more.
So this is another lie they tell you that you need WL for whole life.They already set up road block as one of the features whcih the agents tout it as some generosity or charity from the insurer.The truth is to stop you from carrying it to your death and make huge claim.
You see, are they really that kind?
They think you are stupid nerd.
My advice, is if you have to dip into the cash value terminate it and cash out every cent.
It was the WRONG product that was dumped on you in the first place. There was NO planning for an emergency like this cash need. The agents were incompetent or had self interest or dishonest. All this could have been avoided if there was PLANNING.Planning is key and product pushing evades it.

The Watchman; December 02, 2009 9:54 AM
Everlearning said...: "You will enjoy 100% capital protection on your investment if you hold it to maturity." Such printed words on the brochure, with a set of scenorios that show your principal amount invested would be returned to you upon maturity is FAKE.

I went to DBS bank to get an explanation. The reason given was one of the bonds was not doing well. Why wasn't I told about it about six years ago that I would not get back the exact amount put in???

I remembered vividly that I would definitely get back the principal amount and besides there was a 5.3%unconditional payout, regardless of how the investment fared in the market after six months placement.

Now, the RM told me that if I were to work out the number of years I put in the bank, it worked out to 0.7% per annum.

If I were to put in the fixed deposits I would have gotten a better deal than this!!! Never, ever will I be sweet-talked into any investments with the banks!!!; December 02, 2009 2:43 PM
Anonymous said...: OK, some figures to think over. If you have wholelife insurance and the cash value is now 10 times your annual premiums, how long will the policy last if you decide to APL it?

If the "spread" is 4%, then it will last about 8 yrs.
If spread is 2%, then will last about 9 yrs.

If you need the insurance cover, better to just cash out & get term. You'll be able to cover for much longer timeframe. Of coz, you'll need to be still insurable.

I have come across quite a number of customers who were "advised" by their agents to APL and/or do policy loans in order to buy another wholelife. They came running to the business centres when they receive letters telling them that their original insurance will be terminated due to negative equity.

Some of those agents even told the customers that their policies will be "self-running" coz the "best kept secret" says that they will get returns higher than the 5.5% loan interest! Ya, this coming from those who supposed to be "social in purpose". Too bad they focus on the "commercial in outlook" part more.

Agents like to take advantage of typical S'poreans who are kia-su, want to have the whole cake and eat it. Customers want insurance but also want "money back". They don't realise that wholelife is basically term till 100 yr old, combine with a cut (40% to 60%) from long-term govt and high-quality corporate bonds. In this low-rate environment the yields of such bonds are <3% to 4%.

Ex-Con; December 02, 2009 5:23 PM
Anonymous said...: Besides policy loan another cover up is the cost of insurance also known as mortality charge (MC).
Did you know that MC increases with age for whole life and all products?
Did your salesman insurance agent tell you? I know they told you that the premium you pay is level throughout but they didn't tell you the MC will exceed the premium when you are 60 years and will continue to increase as you age.
When you hit 60 years old the MC may be a bomb .
But you may say, no lah , I still pay the same premium, leh.
Ah, this is where the agents will lie through their teeth.They didn't tell you the insurer is slowly stealing from your cash value to pay the difference between your premium and MC. Without you knowing it this is revenue and income to the insurer and lifetime income for them if you keep your policy for lifetime.
You don't even know that your cash value is shrinking .
Now you know why the agents love their favourite argument that term plan is expensive when you are old and not whole life plan..This is to cover up the wholelife plan they sold you and they told you half truth about the premium only but not the MC or cost of insurance which increases and you have to bear when you are old.
You see, the whole thing is not transparent and they lie about it. It is the best kept secret and cover up of the century.
Can you trust your insurance agents and the insurer?
Think about it.
If there are actuaries and agents reading this post , please refute it or else be known as liars.

The Watchman; December 02, 2009 10:29 PM
Anonymous said...: Ex-Con,December 02, 2009 5:23 PM

what you mentioned is actually churning/twisting of policy which is illegal. It is disappointing that it is happening in a social purpose company.Wonder why no one blew the whistle.
It is another of the best kept secret but this time is a cover up of anti social purpose. It is all fake. From company to agents they are all wolves masquerading themselves in social in purpose clothing and misrepresenting as financial consultants and actually have all the characteristics of the commercial predatory instinct.; December 03, 2009 9:52 AM
Anonymous said...: Ex-Con of December 02, 2009 5:23 PM,

what you claimed that agents from this social purpose insurance company are doing is very dangerous and is against the interest of the policyholders. It should be reported to MAS. Is their compliance department sleeping or condoning to this malpractice?
Consumers who were told to do this must report to MAS. It is against your interest.
I heard of this practice from some agents.Since the introduction of the limited pay wholelife living plan the agents were persuading their policyholders to buy this new plan by converting their existing plans to APL. So it is true.The policyholders will lose badly. This is unethical and unscrupulous.; December 03, 2009 10:49 AM
Anonymous said...: Err, for those who have extra $$$ and don't know what to do with them, heard that Income just launched their Cap Plus again. This tranche is for 2 yrs lock-in and yields 1.6%pa. You must not need the $$$ within 2 yrs coz got penalty for pre-mature withdrawal.

I guess Income needs extra moolah to subscribe to the recently announced SGD Tumasick bonds of 4% and 4.2%.

Ex-Con; December 03, 2009 5:22 PM
Anonymous said...: Look for a qualified agent for advise.....

This was what most articles advised. For the above loan concept, my FA, with all sort of qualifications, says it is a good deal. I told her no as policy yield is 2% and I have to pay interest borrowing my own money at 6% from NTUC.

So who to trust? My believe is yourself and forget about getting a reliable FA. They are just another sale person out to make a buck or two...; December 03, 2009 8:12 PM
Anonymous said...: Any policyholders who were advised to take loan or go APL sue the agents for the inappropriate advice becuase that is beginning of the end of your policy.Wrong advice on wrong product by wrong agent. This they never told you.; December 03, 2009 11:41 PM
Anonymous said...: The Ntuc capital plus gaurantees that you lose money after 2 years. They tell you that it is better than the bank. This is misrepresenting .This is benchmarking against the wrong benchmark. The correct benchmark is the inflation which is 3.5%.
Putting your money in capital plus guarantees that you lose 1.9% of the money every year in real term.
Does the company have any intention of adding value to their customers? Do the agents ever reveal the truth to their customers?Do they care? NO, both are in cahoot to hoodwink their customers.
Due diligence? it is completely absent. The intention is obvious. use cheap dubious products to be #1 is despicable and shameless.; December 04, 2009 9:11 AM
Anonymous said...: The interest rate charged on policy loan is about OD interest; which I think is quite fair.

This loan should be taken only as a last resort for emergency use; and repaid as soon as possible; bearing in mind that main objective of buying a insurance product is to have a sum of money for old age.

Because you are borrowing from the insurance (literally) your own money; the procedure is really simple. Bring your policy and ID to the Insurance Company and they can process the cheque within a day. (Instalment repayments are acceptable).

Try borrowing from a Bank. They would have to do a credit rating on your personal worth etc, etc. Then at the end of the day (which may drag for months), your application may be rejected.

This monetary coupled with emotional stress can literally drive a person mad.; December 04, 2009 9:50 AM
Anonymous said...: During bad time it is actually good time for the insurance companies.
Their customers can provide the hedge against the downside of their life fund, that is loans to the policyholders at cut throat rates.So, you now understand why the agents persuade you to take a loan on your policies instead of surrendering.You see, the agents are working for the companies at your expense.They tell you all the craps about insurance protection as if they are so concerned for your welfare and so it is companies. Crocodile tears, phoney, fake, hippocrates, if they were so concerned about your protection the agents would have used other means, other products instead of whole life with so many traps, to address your protection needs. Is this your trusted insurance agents? Beware of them.
Get your existing polices checked by FISCA for mis-selling and whether you have a plan in place to weather through crisis and in time of emergency.; December 04, 2009 10:48 AM
Anonymous said...: Is the cash value in our whole life policy or endowment OUR money?

1. Why do we need to borrow when it is our own money?
This was told by my agent that it was a saving plan.but??

2.Why do we need to pay a hefty interest rate of 6-8% when the cash value is a guararantee? I am the BEST customer and I should get the PRIME RATE, don't I?

3. Why is the cash value not paid when there is a claim? The protection value paid but not the cash value.

Someone said this is an overdraft. Is it? Overdraft is NOT collaterised and that is why it is hefty but my loan is guaranteed by the cash value (supposedly MY MONEY), isn't it?

Now ,we are beginning to see a lot of things NEVER told to us.Cover up by the agents and their company.
MAS always says that their regulatory regime is disclosure based. BULLSHIT!!!! The insurance agents and their company disclose selectively only and cover up the rest.
Wah low!!!! if not for MR. Tan Kin Lian's blog all of us would have been taken for more rides by our so called trusted agent and the company.

Conned & Lied; December 04, 2009 12:06 PM
Anonymous said...: Regarding APLing and/or policy loan and/or surrender old policy & then get new wholelife --- agents aren't gonna document this in the financial need analysis. It is all verbal, most important is to get client to buy the new wholelife first, then later up to client to proceed with APL and/or policy loan and/or surrender.

Even for those agents who write down in the FNA, they will get the clients to countersign against a statement along the lines of Yes, I have been fully disclosed of the pros/cons/fees/penalties blah blah, and Yes, it is my own decision to proceed based on informed decision and knowing the consequences. The clients actually willing to sign away their protection!

I only know 1-time when compliance called an agent over this thing. Most prob becoz the client suay suay made formal request for APL on the same day as agent submitting the application for new wholelife. Agent then ask client to write letter to company saying that it is client himself who insist on doing this and that client is willing to bear all responsibility!

Mostly all in the dark until judgement day comes for affected clients and they come into the office to complain.

Ex-Con; December 04, 2009 12:45 PM
Anonymous said...: If compliance knows it involves APL and/or policy loan, I doubt they will let it pass. Hence these 2 methods will be unrecorded and verbal between agent and customer. Agents can add sweeteners such as "rebates" or "ang baos" -- up to your own imagination. They just want people to buy par products in order to collect high commissions or to keep job.

If surrender old policy to buy new policy, then can be passed provided the following it met:-
1) customer has not developed medical problems.
2) customer sign that he has been fully informed of pros/cons/consequences and that he is making fully informed decision of his own doing.

Usually agent will help customer put in reason such as "don't want to pay premiums for old policy until 85 yr old, therefore replacing with limited pay wholelife".

Ex-Con; December 04, 2009 2:17 PM
Wealth Journey said...: oh.. this sounds like the CPF asking members to top up their CPF with interest when they sell their properties(financed by CPF loan).; December 04, 2009 3:23 PM
Anonymous said...: Sorry,even with the consent of the customers or the documents carry the signature THEY CANNOT PASS THE REASONABLE BASIS TEST of section 27 of the FAA. Every agent must know and ought to know their recommendation MUST be of reasonable basis.
The agents cannot claim that customers want it one or the customers love it, hor or the customers think it suits their needs.
None of them is valid.The agents MUST know that his or her action will breach the law and that it is NOT the best option.
The best option is convert to paid up and once it is dome it will function like a limited pay wholelife albeit a lower sum assured.
Another option is the agents should discharge himself or herself if request to convert to APL to buy a limited pay living policy is initiated by the customers.
MAS knows what is going on and will not hesitate to prosecute an agent and the above agents' reasons to execute the buy is no defence.. There are telltale signs left by agents to show that it is the initiative of the agents and not the customers's. This is enough prima facie evidence to prosecute the agents.
Of course all this will not happen if there is no complaint from policyholders and no audit by MAS or by the company.The supervisor forgot that he or she is liable too for accessory after the fact. But all this will change if policyholders seek the help of FISCA.; December 04, 2009 3:26 PM
Anonymous said...: "Usually agent will help customer put in reason such as "don't want to pay premiums for old policy until 85 yr old, therefore replacing with limited pay wholelife"."

it is a very lame excuse.As his or her supervisor I won't approve it.It shows glaringly the agent is twisting/churning the policy for his benefit. It is unethical because the agent stands to gain. If the agent is truly and ethical he or she should recommend conversion to paid up if the policyholder doesn't want to pay premium further but definitely not APL which is as good as throwing away good money and into the pocket of the insurer.
Policyholders who have been asked by agents to APL their policies to buy a limited pay living policy must lodge with MAS.It is NOT to your advantage. This agent is UNFIT for this industry and he or she must be punished and their license revoked.; December 04, 2009 7:56 PM
Anonymous said...: 1.Are you aware that you are paying same premium for less coverage?

You must have heard from your insurance agents that your whole life policy increases in coverage over time and is a hedge against inflation? Is it true?
Either the agents lie or they are simply incompetent. But I think they are both.

The coverage decreases but not your premium. Check your wholelife policy or get someone, an honest expert objective non insurance agent to help.

The Watchman; December 05, 2009 11:46 AM
zhummmeng said...: It seems that insurance agents are not telling all and telling the truth. Can we blame them? After all salesmen don't tell all. They only tell you what can sell and what consumers love to hear. Is it a surprise that the APL/loan not revealed to you? You never ask, the agents may retort. But in the first place consumers don't even know what is this animal called APL and the risks of APL.
In a disclosure based FAA insurance agents are obliged to tell all no matter how boring they are.It is a duty, fiduciary duty to reveal all and to tell the truth and nothing but the truth so that customers can make informed decision.The problem is most of the times the agents not only don't disclose they tell lies and falsehoods too.
I wonder what MAS is doing about it.
The just concluded Citi-FT Financial education Summit many of the speakers are in agreement that consumers cannot be expected to make informed decision when financial products are so complex to understand and sellers cannot use Caveat Emptor to protect themselves.
Look at the whole life products, are they simple? You can judge for yourself after so much has been revealed that consumers are not aware of? The name may sound simple and familiar to most people even housewives but its application and usage isn't. This product is loaded against consumers and with a lot of dangers and buyers are unaware.Other than being expensive, low protection, low return, inefficient, wholelife products are designed to benefit the insurance companies and their agents.
The proposed Literacy Institute by MAS must not fall into the trap that consumers will be savvy after the courses. At the best is only awareness. Look, the insurance agents themselves are still NOT QUALIFIED after passing the tikam tikam licensing exams , waht do you expect the consumers who attend courses once in a while.
The onus must still lie with the insurance agents who are supposed to advise and not push or dump usless expensive products with high commission on unwary consumers.MAS must not shirk from its responsibility to protect the consumers. They must make the agents liable for their recommendations. Caveat EMPTOR IS A DIRTY WORD HERE IN THIS BUSINESS.
I believe by now many who visit this blog have some understanding of the wholelife products. I am sure some were shocked to know about the loan and the interest rates to pay the insurers especailly when they were told by the agents that whole life products are vehicle for saving.It turned out the consumers were trapped from the start and are held hostage to hold to eternity when the insurers decide to release them otherwise face losses. MAS website shows many decided to commit suicide by cutting losses. If one were to add up the losses from whole life insurance the minibond loss pales in comparison.
MAS must act to address the problems. It must start with the agents, the main dangerous culprit in the equation. Get them right is half battle won, then the commission, then the products.Of course the CEO is right at the top whose head must roll first whenever there is misconduct.He cannot disavow any knowledge.With these few things in place the animals will be tame.; December 05, 2009 2:39 PM

Wednesday, December 02, 2009

Policy loan

20 comments:

Blog Archive