Monday, June 07, 2010

Life time savings

I posted a story of a non-working woman who invested all of her savings in a 21 year endowment policy. She would have paid $18,000 in premium and obtained a return of $16,000 on maturity. This gave a negative return. Part of the premium went into paying for a rider to provide additiona insurance protection, but this was over-priced.

She obtained a meagre return of less than 1% per annum on the savings portion of the premium. The insurance company would probably have earned an average yield of 5% per annum. More than 80% of the gains went into the commission, expenses and profit. The meagre return could not even cover the inflation during the years. To this woman, it represented most of her lifetime savings, which has been denied of a fair return for a financial plan that was traditionally supposed to be trustworthy.

When I think about the million of policyholders who have suffered this fate, I wonder about the harm that the life insruance industry and the advisers had done to the people. Perhaps this applied to only some of the companies and agents, and that the other companies could have offered a more decent return. But, to my knowledge, quite a large number of people have suffered from the poor return.

Even life insurance companies that offered decent return in the past could change their strategy to focus on making profit for their shareholders and agents. Their policyholders would be placed in a helpless situation, unless the regulator steps forward to protect the interest of the public. In some countries, the regulators were appalled by the type of predactory practices and have taken steps to control the excesses.

Tan Kin Lian

6 comments:

Anonymous said...

Hi Mr Tan,

I vaguely remember quite some time back (maybe 1 or 2 years ago), you posted something on Malaysia laws (regulated by Bank Negara) on this aspect and some readers even said why Malaysia had better laws on this than SIngapore and why couldn't our MAS do the same?

It will be good if this can be repost to refresh and remind our MAS and readers again.

Anonymous said...

But I thought endowment policies are supposed to give better returns. Mine did , but I did not have any rider, I am surprised that such a policy has given only 1% cpmpounded. Any way it is still better than savings account and she gets insurance protection.

Anonymous said...

Now these anticipated endowments are disguised as cash back, coupon or dividend and the best return in the market is only 1.6% AFTER 25 years. The other features like reinvestment or 3 times accidental death benefits are rubbish.
IF one wants to invest in an endowment it is better to invest DIRECTLY into one for higher return than going one big round to invest.
Of course ALL endowments are scam products.
If investors want to invest for 'liquidity' and higher return one should invest directly into an ILP instead of paying off the agents and the company and whatever left of the premium is then invested.This is a load of conjob.
Investing in cash back anticipated endowment is like taking a MRT train from City Hall to Paya Lebar Circle line exchange and board another train to Bras Basah when one could just walk from City Hall to Bras Basar.On the way before the policyholders can reinvest they get robbed.If it is not a scam it is daylight robbery.
MAS should be told of this kind of products in the market that rip off consumers.
Consumers who bought them should get FISCA to reveiw for mis-selling.

Anonymous said...

Please expose all these c anticipated endowments disguised as cash back , coupon or dividend plans. It is very obvious they are intended to cheat the public. They are so convoluted to hide the truth of the core product. Isn't it cheating? in fact almost all the insurance companies have it.
There is one social enterprise which went one step further to offer it as part of the package as "buy one get one free" and this package is nothing but churning of policy. Is MAS aware of this? MAS should arrest them at their roadshow.These conmen and women should be stopped.
Expose them to let the consumers be aware of the charlatans and the products.

Anonymous said...

The foreigner behind this has the full backing of our labour ministers who are too busy looking at their cpf statements and feeling rich to notice. We have to wake them up from their richie rich dreams and give them a wake up call this coming election.

Anonymous said...

Hi,

Im a noob surfing the net to know more about insurance policies. I have been reading thru ur blog... You seem to think that alot of harm has been made by the products of the life insurance companies.

You were the chief executive of NTUC Income for 30years. I do not know what your role was, but it seems to be somebody of a high level of authority. So you allowed your company to sell products that are so harmful and was there happily for 30years? Seem so contradicting...

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