The truth about life insurance
Posted by theonlinecitizen on May 7, 2008
Many people buy life insurance to provide financial security to their family. If premature death occurs, the policy provides a cash sum to take care of the future financial needs of the family.
Insurance agents are drilled into thinking that they play a “noble” role in safeguarding the future of many families. This is half the truth.
Here is the other half: Many families are being grossly overcharged for the modest financial protection offered by the life insurance policy. After deducting the high expenses, their net savings do not earn a sufficient yield for them to live on during their retirement.
Let me quote a real example. Take the case of a male at age 30 saving $300 a month over 30 years. He is able to secure a sum assured of $100,000 under an endowment policy.
If premature death does not occur (and this represents probability of 95%), he is likely to receive a maturity sum of say $171,000, representing a yield of 3% per annum on his savings over 30 years. The insurance agent says that this looks like a good deal, considering that his family had enjoyed financial security for 30 years.
If the policyholder had invested the same sum of money in a low-cost investment fund that mirrors the investments of the life insurance company, he is likely to earn a net yield of about 5% per annum. At the end of 30 years, this will give an accumulated amount of $239,000.
This investment fund earns $68,000, or 40% more than the proceeds of the insurance policy. This is reflected as the “effect of deduction” in the benefit illustration given to the consumer at the point of sale of the life insurance policy. Most people are not aware about the existence of this figure, let alone understand what it means.
The effect of deduction of $68,000 represents a “reduction in yield” of 2% per annum, i.e. the difference between the net yield of 3% and the gross yield of 5%.
The insurance agent will probably explain that this is the cost of the valuable benefit provided by the policy, namely, the financial security provided to the family for 30 years.
What the agent did not say, which is probably dishonest, is that the policyholder could have bought the same financial security to the family through a decreasing term insurance policy for only one-tenth of the cost, or about $7,000. The low cost term insurance, which is what the agent does not offer to the policyholder, will allow the policyholder to earn $61,000 more over the 30 years.
The remainder of the “effect of deduction” goes to pay for the agent’s commission, the overriding commission to the agency managers, the advertising expenses, the sales incentive trips, the overhead expenses of the insurance company, and the profits for their shareholders.
If the policyholder buys a whole-life policy or a critical illness policy, the “effect of deduction” is higher than that for an endowment policy. Although the coverage is higher and wider, the total cost is still about ten times of the cost of a comparable term insurance plan.
The investment-linked policy is equally bad for the policyholder. I have seen benefit illustrations for these policies where the reduction in yield is 4% or more. If a reduction in yield of 2% amounts to $68,000, a reduction in yield of 4% will more than double the cost. This is taking too much from the unsuspecting consumer. It amounts to daylight robbery.
Here is my advice:
1. Do not buy any high-cost life insurance policy. High-cost life insurance plans are those where the policy combines life insurance protection with savings. Low-cost life insurance policies – term insurance policies – cover protection only.
Examples of high-cost life insurance policies include whole life, endowment, critical illness, education and investment-linked policies, where many months of your premium are used to pay the insurance agent’s commission.
2. If a policy is recommended to you, you should ask about the “effect of deduction” and the “reduction in yield”. If the insurance agent is not able to show these figures, you should stop the discussion as the agent is incompetent or dishonest. Ask the agent to disclose the total amount of commission payable over the first three years of the policy. Remember, the commission comes entirely from your premiums.
3. Find out about the cost of decreasing term insurance to provide the same coverage. Do not ask the same agent, as he or she is likely to quote you a large premium. Call the hotline of another insurance company. If they do not provide a decreasing term policy, you can buy a level term policy for a higher premium.
4. The coverage of $100,000 is probably inadequate for your family. You need to be covered for about five years of your earnings. Most people need $200,000 or $300,000. If you buy decreasing term insurance, you can afford to have higher coverage as the cost is low.
My history in NTUC Income
Some people will point out that during my tenure as chief executive of NTUC Income, I had offered the same life insurance policies that are now being discouraged in this article.
Here is the truth. The policies that were sold during my time have a cost to the policyholder that is less than half of similar products in the market. This is achieved by reducing the agent’s commission and the administrative, marketing and other expenses. These policies give a return on maturity which is 15% to 30% higher than similar products in the market.
This statement applies to the old policies introduced during my tenure. I do not wish to comment on the new policies introduced by NTUC Income after I have left. The consumer should ask about the “effect of deduction” and the “reduction in yield” on these new policies and make their judgement.
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May 7, 2008 at 11:18 am
Many thanks to Mr Tan for his advice. However, was this properly disseminate and educated to your agent when you were in NTUC income? Was it NTUC Income policy to ensure that the consumer were made to pay for the unnecessay?
It makes me wonder why you have suddenly become a crusader for the NTUC Income policy holder?
May 7, 2008 at 11:30 am
Insurance agents will almost never inform you of the most cost effective polices as these yield the most miserable commissions. I believe that nowadays agents only earn commission off your life policies for the first 5 yrs or so. Unlike previously when they took a cut of your premiums over the entire duration of the policy.
This has lead to predatory practices where agents attempt to sell the most expensive policies to make it worth their while.
It is ludicrous for us to continue to pay higher premiums for lower coverages and lower bonus distributions.
“return on maturity which is 15% to 30% higher than similar products in the market”
Mr Tan Kin Lian - might i ask what you mean by ’similar products’? are you comparing to products offered by other insurance companies or are you referring to investment products offered by lets say the banks?
May 7, 2008 at 11:30 am
Insurance agent gave me a bad impression,they want our commission only,after 3 years or 5,when no more commission, they disappear,I lost a lot whether in insurance or unit trust.Can’t trust them any more.
May 7, 2008 at 12:17 pm
From what I understand, the concept of insurance is collective protection. Meaning if 100 individuals pay for an insurance and let’s say 1 person actually claim before maturity, then the rest are basically providing the payout to this individual. As return, you get collective protection. I fail to see this being reflected and so is it significant? I think a complete picture is needed for fairness and also, I am not denying that agents have families to feed too. Just my dime worth.
May 7, 2008 at 1:23 pm
Hi Mr Tan, thank you for your insightful advice to many disadvantaged policyholders of NTUC Income, some of whom would probably be as disgrunted as you at present.
However, like some people, I am intrigued as well as to why you have suddenly become a crusader for your former company’s policyholders. You are, or rather, you used to be a former NTUC Income man (since you had chosen to draw a clear line to deviate yourself from the present management by not commenting on the new policies introduced after your departure), and you didn’t leave the company for a very long time, so as to speak. It makes me wonder if you have some other motive for doing this, whether it is political or not, or whether you have substantial solid backing to make such a loud statement on a government-friendly newspaper. After all, you used to be a NTUC Income man.
Once again, thank you very much.
May 7, 2008 at 5:37 pm
Mr Tan Kin Lian you are a very brave man and I greatly admire you.
Singaporeans needs more men like you.
Thanks for your advice.
May 7, 2008 at 8:59 pm
Dear Mr Tan,
With all due respect, your advice can be obtained from reputable financial planners, who do not earn commissions from sale of any financial products (However, a word of warning. Some “financial planners” are actually insurance agents). Such is the current state of the insurance industry - your ‘confession’ says it all.
Your statement “These policies give a return on maturity which is 15% to 30% higher than similar products in the market.” does not support your own point that one should NOT buy those life insurance policies. I do not see how this could absolve your position.
I am not so sure what are your motives for this article - an atonement or public penance of some sort, perhaps?. However, in the context of financial truth, this is most welcome.
Perhaps, you could reveal more on other non-life insurance products. Of particular interest ($$$), the so called “medical” insurance in Singapore.
May 8, 2008 at 12:09 am
It was disappointing to see you condemning Financial Advisers so actively barely one year you left NTUC Income.
One year ago, people from NTUC Income respected your hardwork as you go around Singapore giving endless Seminars and promoting plans from NTUC Income. They paid tribute to you when you left and you left with full respect.
Today, you were telling everyone don’t buy these plans anymore because new plans are not of good value. You also changed you mind that old plans that you used to promote are also of no good value now.
We cannot stop you airing your views. Maybe you want to get the best Citizen or Singaporean award by being a noble person who are willing to give advice by not getting a single cent. You can spend all your time in your blog teaching people not to invest in Unit Trust or get any Life Insurance because you have already build up a good wealth from the company you are condemning.
I cannot disagree that Standards of Insurance Professional need improvement or some Financial Advisers deserve their rewards by selling the inappropriate plans but I do not agree that they should be slaughtered overnight.
The knowledge gained by Financial Advisers are through years of studies and experience. I do not want to argue that some Life Insurance is ok if supported by Term Insurances. Many Financial Advisers deserve some commission or advisory fees. It was unfortunate that the structure are not in place to pay the well deserved and really professional advisers.
If you truly care for the industry, help to think of good ways to improve the situation unless you think the best way is to make a name for yourself by killing everyone in the industry. Or maybe you are trying to gain publicity for the new company that you just set up.
Adrian Khiat
http://akhiat.blogspot.com
May 8, 2008 at 12:11 am
It is quite interesting a number of readers think Mr Tan has a personal agenda. Nonetheless, being quite a math-idiot (heavily penalized in our education system), I read Mr Tan’s article and don’t really have a hoot what he’s saying. They are really too technical for me.
I think in life, you can’t plan too much and you shouldn’t be so picky to the point of counting pennies and cents. Everyone’s got to make a living, so why not just chill out and let your agents earn their dough. Instead, focusing your energies doing what you enjoy is more important and as a result you can earn more too.
I have some NTUC policies (lol, I don’t even really remember the names), and I’m going to just leave it status quo. Have about half a million of insurance, yah so think that should be enough? Really don’t feel like spending time to go down to that AGM and haggle like in a market.
May 8, 2008 at 12:34 am
It is disappointing to see that the person who left NTUC Income barely one year ago, condemning all Financial Advisers in Singapore. One year ago, I remembered seeing Mr Tan going round Singapore in Community Centres and in Bras Basah Centre giving Seminars after Seminars. He was actively promoting plans from NTUC Income.
Today, all the plans he used to promote became lousy plans and the new plans introduced are also lousy plans because he feels that the adviser should not be paid too much. There was “rumours” previously that he tried to capped the commission of his mobile financial consultants. This commission issue, with other issues, prompted the then GM, Mr Stanley Jeremiah to leave. Two tigers cannot live on the same mountain.
I have to agree that not all Financial Advisers are ethical or giving the right advice. But there are many, who keep upgrading, well read with industry knowledge and worked hard for the interest of the people. Its not right to say that an adviser is unethical just because he sold a Life Policy. A life policy may be appropriate if, after a proper analysis, the policyholder and adviser conclude that a Life Policy might be a better choice. I’ll not like to elaborate the advantages of a Life Policy when coupled with a Term policy.
I hope Mr Tan is not trying to gain publicity for his new company that he set up or are being bitter with the new management for gaining market share agressively that he could not achieve during the last 2 years as CEO. His new company works best when all Financial Advisers in Singapore are slaughtered. He is willing to give free advices in his blog with all his free time because he had already accumulate sufficient wealth from the company he is not condemning. He don’t need an income, many of us still need to.
What an interesting personality.
Adrian Khiat
http://akhiat.blogspot.com
May 8, 2008 at 9:10 am
A few people have asked about my motive in revealing the truth about life insurance, and how it reconcile with the products that are sold by NTUC Income during my time.
I have always held the view the the products must be priced fairly for consumers. The premium comprise of the cost of insurance, the marketing expense and administrative expense, with the balance being invested to accumulate the cash value and bonuses payable under the policy.
For marketing expenses, it was necessary to pay a fair remuneration to the agent to sell the life insurance. The commission rates paid to agents and agency managers in the market were far too high. The commission rates paid by NTUC Income were at a much lower level.
Administrative expenses were kept low. There were no extravagrancy. We were frugal. I felt that this should be so, as most of our policyholders were from the ordinary people who has to work hard to earn their monthly income.
The remaining premium were invested to accumulate the cash values and bonuses payable under the policy. The bonuses are distributed to all policyholders fairly.
NTUC Income pays a lower level of tax as a cooperative society. This helps to offset the marketing and administrative expenses, and give an attractive return to the policyholders.
Most insurance policies sold by NTUC Income in the earlier years enjoyed a high rate of bonus and gave an attractive return to the policyholders. A yield of more than 5% (even 6%) over the past 20 years can be considered to be quite good.
After leaving NTUC Income, I have more time to study what is really happening in the market. I get more feedback from the general public about the insurance plans that they have bought from other insurance companies.
I was also asked about the structured financial products sold by the banks and other distributors. These products have many of the bad characteristics of high cost life insurance products.
It becomes quite clear to me about how the general public is being exploited by the bad products offered by the financial services industry. They took away high charges (not properly explained by the financial advisers) and gave a poor return to consumers. I decided to be more active in giving my views in my blog.
This is my personal reply to Adrian Khiat, whom I know well. Adrian is a fair person, although he has recently written a strong criticism of me.
I am concerned about the change in the bonus structure affecting 310,000 policies sold earlier by NTUC Income. I am also conerned about the move by NTUC Income to be more “like the industry”. They destroy the values that NTUC Income stood for, as a cooperative society, during the time that I headed it.
I do not wish to interfere with the new management of NTUC Income in respect of the way that they manage NTUC Income now and the new products that they introduce.
My wish is that they keep the old bonus structure for the old policies that were sold earlier, based on the benefit illustrations that were promised to the policyholders. There should not be an unilateral and arbitrary change.
The management can make an offer to these policyholders to move to the “new bonus structure”. Let it be voluntary.
There are some good life insurance products in the market. Some other products can be improved by reducing the marketing and other costs, and offering fair terms to consumers.
In this way, the life insurance industry can do its “noble” role of serving the public by truly serving them with the insurance protection and a fair return on their savings.
May 8, 2008 at 11:30 am
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May 8, 2008 at 12:16 pm
Dear Adrian,
Other than him being the ex-NTUC Income CEO, I don’t know Mr Tan or what his new business is, or whether he has a vested interest in saying what he says, but one thing is for sure - I am far more inclined to agree with him than with you.
What Mr Tan is saying, as anyone who’s studied finance 101 can tell you, is that there is nothing mysterious or wonderous about life insurance or investment-linked insurance. Deconstructed, they are simply a packaging of a term insurance together with a savings or investment into one scheme.
As such, there is no financial or moral justification for the intrinsic insurance costs of such policies to be ten times higher than an equivalent term insurance (according to Mr Tan).
If what Mr Tan says about the 10x higher cost is correct (and I’m quite sure from his background he knows what he’s talking about), strictly speaking from a finance angle, I am highly dubious that a life policy can ever be better choice under any circumstances.
I think the only reason why such policies sell so well is that the so-called “Financial Advisers” push them hard as they are much more lucrative to sell; and financially less savvy purchasers continue to be “suckered” into it without being aware that they are getting less than what they should get. I agree with Mr Tan that this is downright dishonesty and smacks of conflict of interests.
If your main justification for the “right” to sell such policies is the financial adviser’s own rice bowl, where does that leave the the policyholder, whose interest is supposed to come first?
In parting, I’d like to draw your attention back to the meaning of term you used - “Financial Adviser”. What does that the term “Finance” and “Adviser” signify to you?
Boboshooter
May 8, 2008 at 12:28 pm
Dear Mr. Tan Kin Lian,
You have created quite a stir in the industry. Some people thinks you are wrong, some others think you have another motive while others believe what you are doing is right.
In whatever you do, if your conscience is clear, let those who criticized you not prevent you from doing the good work.
If your conscience is not clear, I appeal to you to listen to your own conscience.
All the best.
May 8, 2008 at 12:35 pm
This is my reply to Adrian Khiat.
I wish to acknowledge the large numbers of insurance agents who have to work hard to earn an income to feed a family.
I hope that insurance companies can design products that are fair to consumers, give good value and offer an adequate remuneraton to the insurance agents. During the time I headed NTUC Income, I adopted this approach.
It is possible for insurance agents to play a “noble” role of selling life insurance, without any disadvantage to the customers. If the agent works hard, it is possible to earn more than enough to feed the family, more than other jobs that they are capable to do. It can also be fulfulling to help many families.
Under my approach, it may not be possible for the insurance agents to be super rich. At least they have the satisfaction that they are giving good value and not taking advantage of the trust of their customers. They are giving honest advice as a financial adviser.
I hope that, in the future, more people will buy good value insurance products directly from the insurance company, without the need for agents to sell the products to them. There will be more salaried jobs for insurance advisers. This will improve productivity and reduce the cost to the consumers. It will also give more stable sales jobs.
May 8, 2008 at 12:38 pm
Hi Mr Tan,
Would that suggest that almost all the policies in the market are not to the benefit of the life to be insured?
May 8, 2008 at 12:44 pm
Boboshooter
Very well said. People are sometimes confused with complex names / jargons / formula with the actual value to be received (if they ever received it).
Just look at the recent sub-prime debacle, very fanciful. And look at some of the big names which got hit. Well, they are supposed to be the experts and darlings of high finance right.
May 8, 2008 at 1:50 pm
Some people asked if I have a motive, that is, if I am setting up another insurance company to offer low cost products?
My motive is to offer to the people the option to buy low cost products, i.e. term insurance and investment funds. This topic has been covered in my blog and website over the past year:
http://www.tankinlian.blogspot.com
http://www.tankinlian.com
http://www.tankinlian.com/faq
Many people have asked me where they can buy low cost term insurance and investment funds. I have directed them to the following:
> insurance companies, mostly NTUC Income
> invest in the STI ETF, through a stockbroker
> invest in unit trust, through an internet platform, e.g. Fundsupermart, Dollardex, POEMS
I am now advising a life insurance company in Singapore to offer these low cost products. I hope that they will be avialble in 6 to 12 months time. This has been mentioned a few times in my blog during the past weeks.
I hope that my actions in educating the public and advising a “new” life insurance company, will spur the existing life insurance companies, i.e the big boys, to offer low cost products as well. This will be to the advantage of the large numbers of people who need the “noble” service of life insurance.
Some people have pointed out that I have earned enough money from my previous job, and I do not need to earn more money now. This is correct. I am doing what I can to offer an alternative, which I hope will benefit many people.
I want to thank the large number of ordinary people who have expressed their views in support of my effort. It has been very difficult for me to endure the personal attacks of people with vested interests.
May 8, 2008 at 2:11 pm
Dear Mr Tan
It is good to know that your intention is to teach as well as offer a low cost productive financial products to the mass, who mostly are simply unware and rely on the finanical agents for advice.
However, it cannot be blamed that the masses to be suspicious of your intention as you have been a “govt man” until you retired. Furthermore, you have been silence on your ex-company products until you retired and becomes critical and crusading the policies holders.
Like what you say, you cannot stop people from saying what they like but if your conscience is clear, you have nothing to be afraid.
May 8, 2008 at 2:22 pm
This reply goes to Mr Tan, Wilfred Ling, Adrian.
Dear Sirs,
This post is not on the new bonus structure, which I have no comments. I wish to discuss on the topic of Term versus Whole Life, which is the essence of the article. I would like to hear your views and opinions, both from an actuarial and financial practioners’ perspectives.
Mr Tan has said on many occasions that everyone should buy Term, and highlighted premiums for Whole Life is many times more expensive. This is an undeniable fact, when we merely look at it at face value.
However, I disagree everyone will definitely benefit from a Term, which is your underlying premise. This is because the assumption is that the person is prudent enough to firstly save and secondly invest.
We are not living in an utopian society. It is a fact; past, present and future that there is a sizable number of people who do not save and invest. For these group of people, whole life insurance is one of the more feasible methods to help them accumulate wealth, as well as give protection. It provides a long-term discipline for them to save and let compounding does it trick. This is clearly better than letting them put money in the bank and hence the temptation to spend.
Also, how many people knows how to invest? We have heard so many real cases of people losing their homes, going crazy, suicide etc during financial crisis. E.g 1997 Asian financial crisis, 2000 dot-com crisis, 2003 SARS crisis, 2007 sub-prime crisis. Are most people really better off investing on their own? And to take the argument further, investing is really both an art and science; not many people can do both of them well. The best part is people only talk about winnings and not their loss. How many really go down to calculate their real yield in investing?
I believe Mr Tan is a very smart person, and one who is very capable. However, I don’t think Mr Tan has ever managed a clientele in which he has met people across a wide spectrum of society. He has spent most of his life managing a company. Thus, although in theory and assuming we live in a utopian society, I agree very much with Mr Tan, I think the advise of asking everyone to buy Term is not appropriate in the real world we live in.
My concern really is that Mr Tan is a public figure, and if indeed his philosophy is too idealistic, will that harm more people than help them? How practical is the idealogy of counting pennies in reduction in yield, effects of deduction etc etc when one is in actual fact better off getting an insurance policy to save?
To sum it up, my argument put forth is this. Consider the practicality of the world we live in, and choose the appropriate action to take. One size does not fit all.
Please take this discussion to be one that is grounded in intellectual debate, many thanks for reading.
May 8, 2008 at 2:43 pm
Dear Mr. Tan
We need people of your influence and intensive knowledge of the industry to speak your mind - not constrained by the need to answer to any current office / anyone. Personal agenda or not, two sides (or more sides) of the story are always better than one so that more viewpoints can be taken into consideration.
In fact, I am more concerned that some people are questioning your motive in order to plant discouragement so that a particular set of views / belief system is maintained within this powerful insurance industry.
May 8, 2008 at 3:28 pm
Dear Mr Palindrome,
Your reasoning has a flaw and you seem to have vested interest in your comments. You are saying that, not all people has an appetite to invest, that’s why they should just let so-called ‘expert’ like insurance companies to do the job for them. If the people agreed to pay 2 years premium to let insurance companies do the job, then I have no say. However, most of the cases, people are not aware of commission structure, and this is exploited by ‘financial advisor’. The reason of ‘caught by stock market’ is heavily used by agents a lot as an excuse to buy whole-life and ILP. From my simple observation, there is no difference that Insurance Companies will be caught by the market movement. So whether I invest my own money or let insurance companies to invest, I am exposed to the same market. So why should I pay 2 years premium to the so-called ‘expert’ if I’m still caught by the market movement? I am better off investing the fund by myself.
Look at Great Eastern results and how they are caught by sub-prime debacle too. To what I see, there is no differences in how I and they invest their funds.
May 8, 2008 at 5:01 pm
Dear Mr Quantifier,
I agree that everyone is exposed to the same market risk, i.e. the systematic risk that seeks to reward investors in the long-run. But this is not the grounding of my argument.
I look forward to you responding to debate against my points.
I am putting forth my point that the world we live in is such that not all people have the knowledge/discipline to save and invest. Buying term is detrimental for such people. I am not sure if you know such people, but I know a few. Thus for such people, insurance may be a good option.
The benefit of an insurer’s life fund is that it is always invested and hence benefits from the market in the long-term. Of course, I need to add that this can be done by you too, if you can conquer your inner fear of market crash and a short-term paper loss. Some can, and some just can’t.
On your point of commission, I have an experience on it. Some five years ago, I bought my first life insurance from a good friend. Needless to say, since we are good friends, I did not question on her commission. I think this is the real issue for most people, that they buy from people they know well (usually, I guess), and hence do not ask seeminigly sensitive questions. I supposed those more savvy ones can take a look at the cost of distribution in their quotations.
On the other hand, I also agree that term may be good for some too. Just to set the record straight, I have no whole life plan now, and I don’t sell. If an agent is like me, writing replies in his productive hours, he will have to eat grass soon
On a final point, I wish to say that this reply of mine is not in favour of term or whole life. What I am putting forth is on the basis that everyone is different, and some are better off with whole life. And thus, for anyone to propose everyone to buy term is not appropriate.
I look forward to a good and gentlemanly debate.
May 8, 2008 at 5:38 pm
Dear Palindrome,
From your comments, to put in simply, what you are essentially saying is that in the real world, the layman does not know how to invest, and he were to do so, he is likely to lose his pants anyway. Since he doesn’t know better, it is justifiable for an insurance company to overcharge this person through opaquely structured products because he is already “better off”?
Sounds like exploitation to me.
I also disagree with your view that the layman is “better off” letting the insurance company help enforce discipline in savings.
If nothing goes wrong for that layman for that 20-odd years the policy is in force, the policyholder gets little more than what he would have got if he had the same discipline to put his money in a bank.
However, in the event there is sudden financial hardship like business failure or job retrenchment, you can always take out your money in the bank without loss to tide over. Not so, for the insurance-linked policy holder. For more than half of the life of the policy, your returns are likely to be negative. What’s the point of compounding when you are starting off with a big minus sign?
As many endowment or savings policy holders found out to their great dismay (esp. during times of the financial crisis you pointed out above) when they tried to surrender their policies prematurely due to financial hardship, they suffered huge losses.
The insurance companies will argue that we are not comparing apples to apples here because the policy holder had an element of insurance coverage whereas the bank depositer did not. However, none of those insurance companies, I bet you, will be prepared to reveal a breakdown of the embedded cost of that insurance element, which will only take their computers in the acturial department a few milleseconds to calculate.
For sake of brevity, I will not even start discussion about the risk-return profile of insurance company’s investments versus a bank’s, versus the type of returns that they give to their clients.
There is an old joke about insurance that you only make money when you are dead. For endowment / savings policyholders, that is sadly but probably true.
May 8, 2008 at 6:04 pm
Apologies if I am too harsh on my words and gone out of point in the topic. Mr Tan is a man of strong principles and he holds on to his ideals very strongly. This, I know very clearly.
I have to agree that many advisers are not well qualified and are selling high premium plans not suitable for clients. Most of the time, these advisers are selling excessive Life Policies and not taking care of client’s interest.
Many are taught and pressured to do that by their managers and company. They do not upgrade themselves to understand the flaws in what they are doing. I understand that Mr Tan is trying to get rid of such advisers.
But in my opinion, we have to be gradual and sensitive as we implement things that will improve the situation. If his comments like “high commission to agents”, “High expenses due to commissions to your agents”, “your agent get a large part of your premium”, etc… The clients thought we get a high commission by selling anything. The monetary factor kept appearing in their mind. They have no idea how much our time and effort is worth. As a Singaporean, they will normally pay as little as possible.
Adrian Khiat
http://akhiat.blogspot.com
May 8, 2008 at 6:04 pm
Dear quantifier,
You seem to have misread palindrome. It is quite apparent that he is supporting CHOICE for the Consumer, who can be broadly classified in 2 groups:
(1) The savvy investor - who knows the market and understands his own risk appetite. If you know how to invest, go ahead and invest on your own but beware of the pitfalls.
(2) The layman investor - who may not be kept updated on market movements or have the know-hows on personal financial planning. If you are not too confident about investment, you COULD (not should) potentially engage professional help.
Also, I think your argument is no better. How sure are you to say that MOST people are not aware of commission structure? Surely any intellectually sound person investing in insurance/unit trust/stocks know that no financial advice by a agent/broker is free of charge. These guys, like you and I, do need to earn a living.
You seem to imply that you are the Category #1 consumer. If so, by all means invest without an adviser. No one is stopping you.
May 8, 2008 at 6:46 pm
Singapore should disallow the deduction of life insurance premiums on income tax returns. That deduction is encouraging people to purchase more expensive policies. Insurance agents will point out that a term policy won’t maximize the tax benefit, and thus a more expensive whole life policy is a better policy. Indeed, it’s not bad advice to at least consider the tax savings in your calculation. But this tax write-off unnecessarily complicates the formula and may make some people more susceptible to purchasing a policy that is too expensive for them.
May 8, 2008 at 7:15 pm
I wish to respond to Adrian Khait comment at 25.
For most life insurance companies, the total commissions paid to agents and agency managers on a whole life, endowment, critical illness, education and investment linked policy takes away about two years of premium, give or take a few months.
For NTUC Income, the commission is about half of the market level for most regular premium policies and about one quarter for investment linked policies. So my remarks about the high commission is more properly applied to the market and not NTUC Income.
Some people may still argue that the commission rates paid by NTUC Income is still high, compared to the actual value of the advice that is provided. This is debatable.
As long as it is properly disclosed to the consumer and is accepted by the consumer, AND THE CONSUMER IS FAIRLY INFORMED ABOUT THE CHARGES OF SIMILAR INVESTMENTS, then the adviser has done his job ethically.
I was responsible to approve the commission rates payable on NTUC Income products during my years at the helm, so I take responsibility if some people consider them to be excessive.
May 8, 2008 at 10:31 pm
Whether or not people have the discipline and knowledge to save and invest is immaterial to the discussion. The real question is whether life insurance is the best tool for this.
People buy life (whole) insurance for two purposes (so they think) - for protection (insurance) and for investment. They think that a life policy will do both.
That is true, but is life insurance the best way to do so? I do not think so.
You can get term insurance for 1/10 the cost (this is also my own experience as I have an ILP). Life insurance loses out.
You can invest in a low cost fund (STI ETF comes to mind) paying less than 0.3% sales charge and 0.3% yearly expenses. Tell me which life insurance charge this kind of low fees? Life insurance loses out again.
Lack discipline? You can arrange with a broker to invest a fixed sum every month into the fund.
If people have the knowledge and discipline in investment and savings, I submit that life insurance would be regarded as a very lousy option indeed. It is precisely because people can’t be bothered or don’t have the discipline to read up on financial products that some companies and agents take advantage of this, and push life products.
May 8, 2008 at 10:47 pm
With reference to Mr Tan’s comments in 26, the requirement to disclose charges is meaningless to those who have no idea what the jargon is. What is supposed to be included in the “distribution charge”? LIA says it “includes cash payments in the form of commission, costs of benefits and services paid to the distribution channel”. I know what commission is, but what the hell are the rest?
At least I can read English. What about those who can’t understand the table at all.
Maybe as long as you print the distribution cost on the table, that’s considered disclosure. There is no requirement to explain what distribution cost actually is.
May 8, 2008 at 10:58 pm
Dear Adrian,
I follow Mr. Tan Blog’s daily while he was INcome CEO. It was after I attended a seminar talk conducted by Mr. Tan , I understand the concept of buy term and invest the balance. I fully agreed with this idea. I asked whether should I cancelled the old Income policy to buy term and was advised against it.
To say today he advised people to buy term instead of other plans ,that is not true.
I hope it is not because your pockets are ‘hurted’ and you write hashed comments about Mr. Tan.
May 9, 2008 at 12:04 am
Dear Blackshirt (item #16)
There are three categories of policies:
a) good value, such as term insurance, single premium (with low upfront charge), life annuity
b) moderate value - policies with low charges, such as those sold by NTUC Income and others
c) poor value - policies with excessive charges, that take away two years of premium
May 9, 2008 at 1:07 am
Dear Mr Tan,
I wish to comment on your advice that public should avoid “Whole Life Plan” and we should buy term & invest the difference”. You have valid reasons for your advice but I felt that this advice coming from you as an Ex-Income CEO may not be very appropriate.
Allow me to explain why I say so:
1) During your time in NTUC Income, you had on going promotions for Whole Life Paricipating Living Policy for many years. Hundred thousand of such Living Policies were sold and now you start telling public to avoid Participating Plans. Participating Plans do have a role to play in our overall financal planning. You played a major part in placing so many of these policies in the hand of Singaporean and now you blatantly asked public to avoid it at all cost. If you are still in charge of NTUC Income, I doubt you will make such a call. It is simply contradictory.
Without all these participating policies sold during the past 29 years in NTUC Income, do you think you can achieve total assets of 16 billions at the end of 2005 from a base of 28 millions. Can you achieve the same result by getting policyholders to buy term & invest the difference in a low cost fund. Better still, since insurance fund charges are high, tell clients to buy from online brokers or invest in ETF directly, etc…
There are reasons why certain products are recommended & sold. Many insurance advisers are making a honest living as mentioned by you. If your advice is to be taken as “Gospel”, there are simply no more roles for any financial advisers in the industry.
You have made enough & are now financially independent, but many advisors are still working hard to feed their family.
In view of your past tremendous effort in promoting “Whole Life Plans”, I just can’t help but felt a sense of hypocrisy with your strong advocate that now, we all should “avoid Whole Life Policy” & just “buy Term, Invest the difference”.
With due respect.
May 9, 2008 at 1:43 am
I wish to add to the various topics being discussed here.
1. Almost everything that is being sold, has a marked up price from the cost price. There are so many products and services being sold that cost more than 100% of the cost price - yet insurance became the sacrificial lamb. Do you really know how much the top professionals are earning? Why not ask the bankers, whom you placed your money with, how much are they earning for the “effort” they put in? What about lawyers and property agents? Seems like earning from all other professions are justified, except that of the insurance industry.
2. Human beings are naturally selfish. Agents should be well compensated for making a selfish bloke who doesn’t care about his family to do something good, to plan for the children’s education, to plan for events like hospitalisation and the rest. Think about it, without the efforts of the agents, the poor widow/widower and the children will be out in the streets. Since the premise that agents are “unethical” because they sell whole life plans instead of term plans, why not the whole industry increase the commission of term plans by 1000% to encourage more people to sell term plans? Agents are severely underpaid when they sell term plans, that’s why they are not enthusiatic about it. Nobody would pay them extra for the good work they have done in convincing a selfish breadwinner to buy a term plan, even the family of the deceased will not share their $500,000 claims payout with the agent. So why would any logical thinking agent sacrifice their precious time to do “social” work when they have to feed their own children? Actually selling term plan is even better for agents, then they don’t have to explain why bonus cuts, because in the first place, there is no bonus to begin with. Better still, term plan got expiry. After that, no need to pay out anything!
3. Term vs Life - Any experience practitioner will tell you this is not comparing apples to apples. It is a no-brainer. Maybe you are layman, then make this kind of biased comparison. Two products meant for different purposes and people has the audacity to compare them as if they are from the same mold. Can I compare a lorry and a car? Both are for transportation right? Got 4 wheels right? Got gears right? Are they the same? No! There should not be a discussion in the first place because these two products serve different purposes.
People can believe and say what they want. Let them. Proponents of whole life insurance - let the nay-sayers (term plan only lovers) say what they want because their time is limited and has zero weight. Why bother with empty vessels with a to-be-discarded expiry date when you have eternity in your hand? Don’t waste your time.
Mr. Tan, thank you for fighting with the new management on retaining the bonuses for the existing whole life and endowment plans. I hope you bring the new management to their knees and force them to retract the decision. Show them who’s the BOSS.
May 9, 2008 at 2:17 am
Tan Kin Lian:
Do you think that greater deregulation of the insurance market will introduce competitive pressures that will keep premiums/commissions/other fees low?
Or do you think these products are too complex for the average consumer to understand, and there ought to be simplified and transparent information (such as through a standardized form) to make it easier for consumers to decide?
May 9, 2008 at 2:39 am
I follow with strong interest the controversy arising from NTUC Income’s move and the subsequent debate involving appropriate insurance plans for individuals. (My focus is more on financial planning though, and since insurance plays an important role in it I’m taking a general view)
I am currently in university and will start working in a few years’ time. In the past I didn’t really think much about the importance of financial planning but have since changed to become more proactive in reading up. All along our education system has neglected the significance of financial planning as a vital lifeskill that should be imparted to the younger generation. But the truth is that even for many adults financial planning remains an enigma to them and many would not bother to educate themselves.
The misunderstanding and confusion that results frequently can be partly attributed to the customers’ initial ignorance and vague understanding when buying the products. While I agree that financial advisors have the moral obligation to duly inform their customers the pros and cons and whatever info they need to know, customers can make things easier by educating themselves too (need not be an expert of course but at least know what’s an appropriate product for yourself…
To this end the ongoing discussion has been very useful…since people having different opinions are expected, and what’s more important is whether the reasoning supporting the various stands are sound.
This has certainly been an enriching discussion for me so far, and as much as I hope that this can continue I wish that any debate can be carried out in a civilized manner without degrading to name-calling etc…
Thank you!
May 9, 2008 at 2:46 am
To Life Member at 22:
1. The fees that bankers and lawyers charge are irrelevant to the discussion. If this thread were discussing legal services or banking services, then their fees would be relevant. But we are discussing insurance so let’s stick to insurance.
2. It is true that agents do not make as much if they recommend term plans. No surprise then why most agents prefer to push life plans whether or not it’s the most value for money or in the best interest of the customer.
3. You do get what you pay for but why pay $1000 for a Ferrari to make a 10 km trip when I can pay $10 for a taxi? Ferrari may be more flashy and can travel faster, but the question is are these extras worth $990? Similarly, why pay more for protection and investment when I can achieve the same objective with different products?
Insurance needs analysis should be a very objective matter. As an insurance consumer, I demand that every dollar I spend brings me some value or utility. The agent is not a social worker, but neither are customers like me charities with money to throw about. We should not be begrudged if we decide to choose low commission products; afterall, it’s our money and it’s our right.
May 9, 2008 at 3:48 am
It was reported in the chinese paper, Lianhe Wanbao, 29 Oct 2006, not too distant past, that Mr. Tan is known to some as “a smiling tiger”, 笑面虎。
What is the meaning of this term? 比喻外表善良，心地凶狠的人. (Do a google and you can find the meaning)
Is this true? Well, Mr. Tan knows himself and it is for us to find out.
Mr. Tan is a politician and a pro-PAP man. NTUC Income was the first to denounce “as-charged” plans when Aviva introduced it and also NTUC Income was the first to back-track on its denounce-ment and came up with their own version. People call it “shoot yourself in the mouth”, he says it is giving “options”. Brilliant turnaround.
Mr. Tan is setting up a new insurance company. This company has to gain publicity, has to be profitable - the livelihood of those it employs is at stake, even though Tan is a financial independent.
To succeed, one sometimes has to be ruthless and wily: what is the shortest and fastest way to jumpstart this new insurance company in a very competitive and small market like Singapore? Creating publicity, shocking headlines, pandering to populist views, airing dirty laundry in public, etc - these are the oldest tricks in the books of skilled politicians.
Politics is still the most dirtiest business.
The new CEO TSC handed TKL the opportunity on a silver platter to gain instant fame. This allows TKL to “champion the rights of policyholders”. The “disadvantaged” policyholders became his pawns. The 1000 signatures, his bullets. Excellent strategy.
I suggest the new management provide small umbrellas as door gifts for AGM in case some people get so worked up over the “big loss” due to the bonus cuts in their annual bonuses (as emphasized by Mr. Tan), that they start throwing rotten eggs around. One 蛋 (dan) is not enough, you need two 蛋 (dan)s to start a party. Although the meeting that starts at 6pm and it is expected to be long, there is no need to provide food as policyholders would expect them to be “frugal”. Ok, maybe New Water should be provided, as people will be talking, shouting and spitting, so they need to replenish lost fluids.
It’s going to be an interesting party at the AGM - Tan bs Tan.
I wonder if it would be broadcast “live” like the Malaysia or Taiwanese parliament openings.
May 9, 2008 at 4:56 am
From what has been written so far in this blog, I can only discern one thing… that the insurance agents can be very bitter and vicious against someone who has the guts to spill the beans on their modus operandi.
After all that is said and done, term is term and wholelife is still wholelife. You pay 10% of the former for what you pay for wholelife insurance. I agree with another forumer in her post #34. If all you need is to travel a certain distance to your destination, why take a Ferrai when a cab will also take you the same distance? Why fork out $100 when you can pay $10 for the same ride? You can save $90 and invest directly yourself. Afterall, when the market is down, everybody is affected in their investments, whether it be you or the insurance companies and the so called big name financial instituations, as evidenced from the ongoing subprime crisis. Why pay an additional worth of 2 whole years premiums for someone to manage the finances for you when the end result is going to be the same?
Why buy whole life just to line your insurance agent’s pockets? Still, to be fair, it is still up to the consumer… if he wants to pay $100 for the premium cab instead of the $10 taxi, nobody is going to stop him… and most definitely not the insurance agents. It is like telling the fat cat to help look after the fish in the fish bowl
May 9, 2008 at 7:14 am
I think that the insurance agents and their policy holders need to work together for mutual benefit. If everybody wants to get the better of the other party, then we are in for sorry times ahead.
May 9, 2008 at 7:48 am
Dear Ken (post #30)
Read my post #11 to find the answer to the issue that you raised.
During the early years, the term insurance rates were rather high and did not look very attractive to the policyholder. The agents were not keen to sell term insurance due to the low commission.
The option to invest in unit trust and investment funds were relatively undeveloped.
More importantly, the whole life and endowment policies sold in those years were good value to customers.
Times have now changed. Today, it is clear that the best option is:
1. Buy decreasing term insurance
2. Invest the difference in a low cost investment fund
Refer to:
http://www.tankinlian.blogspot.com
http://www.tankinlian.com/faq
May 9, 2008 at 7:53 am
Tan Kin Lian:
Do you think that greater deregulation of the insurance market will introduce competitive pressures that will keep premiums/commissions/other fees low?
Or do you think these products are too complex for the average consumer to understand, and there ought to be simplified and transparent information (such as through a standardized form) to make it easier for consumers to decide?
My view is:
> financial products should be regulated
> the aim is to protect consumers from being exploited
> contract wordings should be standardardised
> insurance practices should be explained clearly
> there should be reasonable caps on commission, fees, charges
The consumers have been exploited by financial services industry under a de-regulated environment. They have lost hundred mllions of dollars through the unfair terms.
May 9, 2008 at 9:43 am
To Poster Ken #30,
The world is always evolving, buying a life insurance policy was the way to go 100 years ago in the present day developed nations.
Times have changed and new methods of obtaining greater value for your “depleting” value of money have evolved. This idea of buying term and investing the balance in a low cost fund is the way to go in the present day, context. There is varied number of funds these days to choose from, which were not developed 20-30 yrs. ago. ( watch the Suzy Orman show on CNBC)
Mr Tan is showing the public how to obtain greater value for your money at a lower cost.
He is educating the public at large. I honestly believe that his greater motive is to educate the general public, rather than what is being touted that he is a “sour grape”.
Insurance companies have to re-invent themselves and stop being lead by greed alone.
Stop putting out “structured” products just like the banks are doing which confuse and “hoodwink” a very trusting public, which give “disgustingly”, “insultingly” low returns.
May 9, 2008 at 10:02 am
Sry, my post#43 is in respond to Ken of #33
May 9, 2008 at 10:13 am
To Eveline, 2.46am
1. Commission/Fees are the main concerns - because it is what Mr. Tan claims, as “consumers have been exploited by financial services industry under a de-regulated environment. They have lost hundred mllions of dollars through the unfair terms.”.
Did such “unfair terms” just appear after he “retired”. As he admitted, it happened all along, during his term as CEO, it is only that he collected less, as he claimed. Right. So everybody else is the bad guy, except Mr. Tan, not because he did not profit from it, but because he profited LESS. Pot calling kettle black. Instead of taking, for e.g., $500 comm, he took, $400. So now this is the good guy. So if one guy come along and say, I only take $350! Mr. Tan, you new company is overcharging! Does it make Mr. Tan part of the “bad guys”?
Strangely, after being in the industry for more than 30 years, Mr. Tan suddenly proclaimed that consumers being exploited and he is going to come up with “fair terms”. Has a lot changed in the industry since he left? If I were MAS, I would look really bad because I am suppose to be the watchdog and approve the policies of the insurer. Oh yeah, sure, every practitioner in the industry is blinded by money for many years and only until now, such “unfair” terms only discovered by Mr. Tan, because he took time and did some “study”. Com’on, Mr Tan, who are you trying to kid?
You can ask Mr. Tan: If he were still at the helm of NTUC Income today, would he be only selling only term plans and low cost investment funds? Because that’s what he is preaching now. His new company - is it going to be a non-profit organisation? No? Does he plan to make it profitable year on year? Yes.
2. If term is that good, I suggest to increase the commissions to reward and encourage agents to sell more term, make it worth their time. Were you expecting free insurance, free labour, free love?
3. Yes, a Ferrari sounds good to me. A person who buys Ferrari buys it for a different reason, not just for travelling the 10km. You can walk/cycle 10km or take public transport. If you buy the wrong product because of the wrong reason, don’t blame the product.
“As an insurance consumer, I demand that every dollar I spend brings me some value or utility. The agent is not a social worker, but neither are customers like me charities with money to throw about. We should not be begrudged if we decide to choose low commission products; afterall, it’s our money and it’s our right.” - Sure, your money is big and heavy and it is your right to demand the best service and products available to be served to you for every dollar you spent. I hope your employer knows how to justify the high pay he is paying you. Singapore is lucky to have elite people like you.
May 9, 2008 at 10:52 am
I do not think there is a need to be sarcastic in this discussion. Suffice to say, the customer does not owe the agent a living. Insurance especially plain vanilla products such as term insurance is akin to a commodity. (I’m saying akin, not exactly the same as there are other factors that come in.) Ultimately it is the value of the insurance that matters.
May 9, 2008 at 11:22 am
I agree that the customer does not owe the agent a living. The agent cannot expect the customer to not be alarmed when things don’t look right. The customer has every right to know the truth and to pull out their policies anytime they want if they so choose to do so.
Just as every agent cherish every dollar they make, customers cherish their money as well and should get the best value possible.
May 9, 2008 at 12:40 pm
Mr. Tan Kin Lian started a blog even before his retirement to educate the general public on insurance. This showed his sincerity. Those negative comments about his motives may be true if he started his blog just before or after he goes into a new business. But since his blog started way back, we can safely say that his intentions were simply to educate the public. That said, it is commendable too that he continued his blog when he could simply retire anywhere to enjoy his golden years. That he chose to remain and studied at his own time and money goes to say alot about the man. This man is rare because he does things not for money but for the general good. That is nobility.
Those who write to taint this noble man’s honour should reconsider their positions. Because nothing hurts the noble man more than accusations of the opposite.
May 9, 2008 at 4:45 pm
Moderator, please remove post #49 and #51. They are out of context and add nothing fruitful to the discussion.
May 9, 2008 at 5:13 pm
To Roger Lim (#48),
知人知面不知心!
路遥知马力,日久见人心!
Kong Ming
May 9, 2008 at 5:17 pm
Quoted Tan Kin Lian (#42)
“The consumers have been exploited by financial services industry under a de-regulated environment. They have lost hundred mllions of dollars through the unfair terms.”
Mr Tan, you should have told me 6 years ago when I bought my first whole life policy from your ex-company! Oh…suddenly you are enlightened like a little buddha? I find this it so difficult to believe you.
Aren’t you a qualified actuary and have decades of experience. Cannot be just these two years figure out right? And some more after you resign. So coincidence meh?
May 9, 2008 at 6:08 pm
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May 9, 2008 at 7:44 pm
I have nothing against Mr Tan Kin Lian but I just want to share my own observations. I am an Income policyholder and 2 years ago (if I remember correctly), Income was promoting its new educational website http://www.knowyourinsurance.com , I was happy that such an educational website was setup to educate ignorant customers like myself. But I must say that I was rather disappointed because much of the contents was skewed towards promoting Income’s products instead of being an objective website. I remember quite vividly that there was test questions at the end and it ask biased and leading questions like why we should choose an ILP from NTUC Income. At the end, I realise it was just a marketing tactic to want us to buy from the business centre.
Therefore, I am not sure whether there are genuine objectivity in any causes, when there are so much vested interest in it.
May 9, 2008 at 9:11 pm
This reply goes to Cindy.
Thanks for sharing the site, but I think it sells insurance in the State of Texas ?!
Very puzzling. Aunty Lucy business do until so big???
May 9, 2008 at 9:28 pm
ooopss…you are right. I went to check after you point that out and realise that it should be an sg site, which means the website is still there! Those interested can take a look and you will know what I mean. http://www.knowyourinsurance.com.sg/
May 9, 2008 at 9:33 pm
Oops ZhuGeLiang, I went to check after you highlighted that to me. It should be a .sg site. http://www.knowyourinsurance.com.sg , which means the site is still there! Those who are interested can go in and take a look and will know what I mean. Not sure what is the truth anymore.
May 9, 2008 at 10:47 pm
My concern is, i have spare cash and wish to save some money and i do not wish to commit long term. Hence, i went to ask around for a quote and finally i bought vivolife 10 yrs limited premium.
Most banks introduced me ilp, but POSB has another product to recommend me - pay as you protect.
I had a simple comparison. one i pay for 10 yrs and cover critical illness, death wholelife, the other cover 15 yrs for death and permanent total disability.
of course, i know expert will tell me buy term and invest funds, however, which company will offer me a low premium for term when i reach 65 yrs old? Do you think i still can afford the premium when i need the most coverage? should the funds which i bought goes downwards when i retire, who can i look for for my retirement?
I felt that one should have a good mix of insurance coverage. Buy according to one’s needs and not one’s advise.
May 10, 2008 at 1:59 am
I won’t say that Life Insurance is totally no good.
We have to identify our Permanent and Temporary Critical Illnesses Needs.
Permanent needs is good using Life Insurance or a Term Insurance that cover for Life. Permanent needs covers 3 areas:
1) Alternative Medicine - Tradition, detoxification programs, etc
2) Rising Medical Expenses - Things that your medical insurance may not cover
3) Misc Expenses - Extra Tspt, Maid, etc
There are no standard number in this area for everyone. Certain high networth people don’t it at all. But most of us generally needs around $50k to $100k.
For Temporary needs, its better to use term insurance. It is wise to compensate for around 3-5 yrs of your annual income. Some people uses a Temporary Disability Income Insurance for this purpose. The definition will be wider and it genuinely cover you even if its the 31st illness which is not covered under your policy.
Decreasing Term insurance normally are meant for premature death. Such decreasing term insurance will be a disadvantage to you if inflation in Singapore remain at such high level. I’m not also not sure if there is a decreasing term Critical Illnesses Cover.
My suggestion is (1)”Don’t get yourself overly insured via a Life Insurance.” If you do that, you may end up under-insured and have less money to save for other purposes.
Also (2)”don’t get Endowment plan for Coverage” and
(3)”don’t get a whole life plan without critical illnesses”.
Adrian Khiat
http://akhiat.blogspot.com
May 10, 2008 at 8:39 am
This reply goes to Ease,
I would like to give the following simple layman advice to decide what products to buy.
- Have enough to retire at age 55, i.e. can choose to stop working
- Have good hobbies that you can continue. Don’t just sit around in coffee shops
- Have a peaceful sleep everyday. If you can take high risks, invest more in stocks to beat the inflation. If you cannot, sleep is more important.
- Have good friends and soul-mate.
- If you die, you loved ones got enough. Remember to count how much money you already have so that you will not over-insure.
If you can do the above, then I suppose anything that works, is fine. Of course, if you really want to have best bang for buck, need to crack more brains and do more homework.
In fact for some, this means totally don’t need to invest or buy insurance! I have an aunt who purely have all her money in fixed deposit which works out in the range of low 6 digits. Simple woman, live in 3-room flat an makes her own clothes with no handphone. Really fascinating at today’s age.
May 10, 2008 at 10:32 am
To Ease:
I buy term insurance to insure against death. To do so, I need to determine who my dependents are and whether they NEED the insurance payout. By 55 or 65, your parents are likely already very old (if still around) and your children (if any) can well support themselves.
To accumulate value, I don’t rely on insurance but investment. Neither Life nor direct investment (into stocks/UT/etc) can guarantee a return so I will choose the one with transparent and lower costs.
For expenses incurred when I’m living (and I think health is the most critical expense), I buy health insurance and riders. There are very competitive packages out there from the insurance companies. Most of them cover beyond 65 and yes the premiums increase with age. The question is how much payout do you get for every $1 of premium you pay? I leave you to do the calculations.
You don’t buy term to cover such “living expenses”.
There’s also such a thing called “self-insurance”. Meaning you have accumulated so much wealth that you can afford the projected expenses without relying on insurance. Of course, to accumulate wealth, you must have capital. That’s where term insurance comes in.
May 10, 2008 at 10:57 am
I have 3 wholelife critical illness policy with Income and my wife have 2.
It was taken in 1993. I wish then there is limited premium policy.
Most of us know that the standard of living today is high, and the next generation may struggle if they do not plan properly.
As a old froggy, I do not want to burden the next generation if I am down with a dread disease.
I wish the limited premium plan was introduced then, and I will have no worry to pay towards old age. But then when I am old froggy by then, I will use automatic premium loan or use my savings to pay for the premium. By then cash value of the wholelife plan will be quite good too.
Buy Term, I will not have coverage after 65 or it will be very high premium, maybe higher than a term premium.
So wholelife is not as bad as what it is painted to be. I took wholelife with Term to cover the productive part of my life and wholelife to cover latter part as a old froggy, not wanting to burden the next generation.
We should see the value of insurance plans and plan according to various milestomes in live.
May 10, 2008 at 11:40 am
Agree with Anwar (aka old froggy).
I bought a wholelife critical illness policy with sum assured of $50,000. That serves as my base protection foundation, and long term compulsoy savings, so i very much welcome high bonus declaration too
After the initial base is covered, i buy term life and hospital & Surgery plans from then on, and invest the rest. In total i have of about $500,000 cover, of which $300,000 in critical illness. My total insurance premium cost me about $2,000 a year.
So for me, i advocate getting a basic wholelife policy to cover the base, use term plans to get higher covergage and invest the rest (and bear my own risk) for better long term returns
May 10, 2008 at 3:50 pm
#60 Eveline ,
Well, said, You have put it in a nutsell, hope those who are advocating life policies, will have a 2nd look at this present day approach…. more so for those who have not done any proper finacial planning….
May 10, 2008 at 9:00 pm
Tan Kin Lian is too naive to keep harping on recommending Decreasing Term Assurance. This is a myth to think the protection need decrease over the years and can be picked up by investment.
What is investment goes down the drain in a bad economic situation and values drop and the man drop dead?
The is literal bad advice and “hai see nang”.
For those who are younger, do not take this advice.
Check out Term premium against Decreasing Term Assurance over same duration and same sums assured.
DTA decrease in coverage and can be quite low coverage at the end.
Term insurance premium is not very much higher and coverage is level all the way.
It make more sense for younger people to take Term than Decreasing Term. Term will then be value for money plan than the DTA.
I just did Term for all my teenage child to their age 65 and premium is so low. Average $120 to $150 per year for $100,000 coverage.
May 10, 2008 at 10:03 pm
#65
One of the reason Mr.Tan is now monitoring the comments that are being posted on his blog is that there are posters who have made slandersous statments, against individuals not himself.
So please be obejective in your statement, it is immature statements like this that causes censorship to take place it the first place …. Focus on the issue at hand…….
May 11, 2008 at 12:03 am
#65 Anwar
Why dont you look at DTA in this manner. When you grow older, your children would be older too. They would already know how to take care of themselves by then and so it is unnecessary to leave them a huge sum of money. So shouldn’t we choose to pay a lower premium as in a DTA? If unfortunately we do pass on earlier, the DTA still give good protection value to them as it is still early in the term? Doesn’t it give you the best of both worlds?
It is indeed true that any investment will go through its cycles of up and down, but if you were to leave it there for, say, 10 to 20 years to ride out the risks, it will probably give you a good return which is exactly what insurance is doing. If you invest on your own, you not only get better control of your own profits, you also need not worry on whether they will be returned b