Tan Kin Lian's Blog: Misleading yield on life insurance policy

Tuesday, September 25, 2012

Misleading yield on life insurance policy

If you find a new life insurance policy that gives you an attractive yield on maturity - be careful. It can be misleading. Here is how you can find out.

http://tankinlian.com/FramePDF.aspx?ID=668

3 comments:

zhummmeng said...: Look carefully...get a financial expert to calculate the real return.
Eg.accumulation period and payout period of so called retirement products. Total time frame can be very long like 40 years. broken up into different period. The yield may refer last period.
Why so complicated? Its purpose is to confuse the customers so that the product is being sold and cannot be bought because customers don't know how to buy. But if it is sold the customers can be led in a merry go round until dizzy and made to sign.
Where got informed decision?; September 25, 2012 8:06 PM
Jeremy Ow said...: I think that there should be some form of regulation over the insurance companies, banks and financial institution to ensure they list out the terms of their financial products carefully and the terms are also carefully communicated to their potential consumers (lay people like most general public who may not have strong financial understanding).

I hope financial institutions can be more ethical when they communicate the terms of their financial products (e.g. insurance and investment policies) providing actual information on the "real practical yields" on their products and not some "imaginary over-optimistic yields".

It can be quite frustrating to a consumer who bought into a particular financial product which paints a rosy picture of attractive yield and hold it over many years until maturity to find out later that the returns is just a meagre amount which may not be much difference from leaving one's money in savings deposit in the bank. In such cases, the returns is not even enough to fight the effects of inflation over the years when money keeps depreciating in value. Even worse if there is no returns or a loss is suffered on the total capital one has invested into the financial product until maturity.

If investing in a financial product is not beneficial at all to the consumer but instead only benefits the financial institution in terms of administration charges and annual fee charges, it may be better not to purchase any financial products from the financial institution but instead acquire own investment knowledge and do own investment to grow one's savings. One can do so through investment in public listed equities and STI ETF on the stock exchange or low cost unit trusts from fundsupermart which is easily accessible to the public and relatively easier to understand compared to understanding the terms of a financial product.

One just need to cultivate a habit of constant learning and picking up investment knowledge from own reading, research, and attending trustworthy seminars and courses on investments to be able to learn how to manage own investment. Places that are trustworthy where one can pick up investment knowledge include SIAS and FISCA.

Doing one's own investment and getting adequate amount of insurance coverage through term insurance and medical insurance etc. may be afterall better than buying some financial products (insurance and investment plans) which have complicated terms which may not be really beneficial to the consumer in the long run.

Always take what the financial institution sales representative says with a pinch of salt because everyone will say their financial products give the best yields and any potential downside risk is not really well-communicated to help the consumer make a real informed choice!; September 26, 2012 11:56 AM
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