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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Oh come on Zhummeng – give The Truth more credit than that – i think the tell tales signs points to “The_ Truth” as a senior person in an insurance organisation. tell The_Truth and shame the devil ! : )
Corporate wise, doesnt the shareholders hold the supreme power of the company – unless there is something unique in ntuc’s set-up which givs power to the poicyholders.
Let’s all gear up for the AGM! I think this AGM will really be an eye opener for both the management and policy holders! :D
Yes Zhummmeng,
Sometimes it is wiser to just cut loss instead of dragging on, especially when it is obvious that the truth is actually less than the truth. We are living in a time of three quarter sin and one quarter virtue. Let us retain our virtues, conserve our energy and support our virtuous Mr. Tan KL this coming AGM with the real truth, nothing but the TRUTH.
The AGM is next week, anyone got a copy of the annual report already?
The softcopy at http://www.income.com.sg/aboutus/annreport/ is still for year 2006
The truth prevails despite the “unrelated” criticicm brought forward by some, in a clear, evident effort to cloud the minds of the innocent blog readers, from the main topic, “The truth about whole life insurance”.
We, NTUC Income policyholders, are a group of people who thinks rationally and never let our emotions take over us.
When emotions take over, this is the outcome….
“People who follow a leadership with a self centred agenda, beneficial to only one person….you know who….”
Well….this is the_truth message to all term insurance advocators.
Term insurance can only be use to ENHANCE a person’s coverage and not use as a base, or as a “one-size-fit -all” solution.
BWBUI (Buy Wholelifeinsurance Before U Invest) concept requires everyone to buy whole life insurance before he invest any of his money.
This is because, he will never want to be force to liquidate his investments at the wrong timing, to provide cashflow when he needs the money urgently.
In the event of unemployment, whole life insurance policy like NTUC Income Vivolife allows waiver of premiums up to 6 months, which came rather handy.
So, where does term insurance comes in?
Term insurance can then be used to enhance the person coverage, to ensure he has sufficient insurance protection.
So, you see, there is no way, policyholders who adhere to BWBUI concept can go wrong, or be critically underinsured.
Therefore, it is a clear predication that Zhummeng’s claim, BWBUI will be “baboons with bananas under insured” is rather UNINTELLIGENT and simply UNFOUNDED.
hope Zhummeng understands what he tries not to understand.
Hello thetruth, you are an insurance agent from NTUC or another company? You seem very knowledgeable, far more than an ordinary man in the street.
But my take is that both term and wholelife insurance of useful to have, although the former is much better for insurance coverage and wholelife would only be useful for ill disciplined people who do not know how to save. The returns are a mere pittance compared to what you can invest and reap in a low cost fund.
I too have all wholelife polices, but that is because I didn’t realise any better then. And of course, my friendly, nice guy but vested interest insurance agent never told me all these years. :D
There are a lot of things agents never told you.
#1. They never told you that you needed a lot of of coverage; they only told that you needed insurance.
#2.They never told that term was cheap and was the best means to adeqautely cover your needs.
#3.They never told you they earned a lot more from selling you whole life
#4. They never told you that whole life plans were useful for rich people who had estate duty concern(repealed) or people who were rich to leave a legacy.
#5.They told you that you needed whole life when you were old. For what?
#6. They told you that you needed a CI when you a were old and frail when you actually needed an H&S.
#7. They never told you that whole life was a good source of revenue to the company as long as you keep your policy in force.
#8. They never told that that a ‘BOMB” was awaiting you when you were old.
#9. They never told you that your whole life coverage never increased over time
but they told you the opposite.
#10. They lied to you that your your policy protection increased over time to take care of inflation.
#11. They lied to you that the return projection was guaranteed.
#12.. They lied to you that you could rely on the cash value for your retirement.
#13. They lied to you that whole life would take care of your needs for ever.
#.14. They lied to you that term might lapse and never told you you could earn a lot more from investing directly yourself.
#15. They lied to you that you stop paying when you completely paid up your limited premium term.
#.16 THEY NEVER TOLD YOU THEY WERE INCOMPETENT TO HELP YOU WITH
BTITD and they were salesmen like any other salesman
Friends, your agents may be hiding a lot of things from you .There are also people who have vested interest helping the agents to perpetrate whole life products. I can think of many lies that your insurance agents would use to make you buy this product and the above are some only.
Unfortunately , Zhummeng has made a few unintelligent assumptions and here again, is my tender, loving care suggestions.
#1. They never told you that you needed a lot of of coverage; they only told that you needed insurance.
My tender, loving care answer: That is why I have been strongly advocating the need for financial planning instead of recommending term insurance as a “one-size-fit -all” solution.
Through financial planning, all these protection needs will be uncovered, instead of closing your eyes, and recite, “term insurance, term insurance, term insurance…”
#2.They never told that term was cheap and was the best means to adeqautely cover your needs.
My tender, loving care answer: That is why I say the purpose of term insurance is to enhance your coverage and to ensure that you are adequately covered.
….and term should never be use as a base.
#3.They never told you they earned a lot more from selling you whole life
My tender, loving care answer: Agent’s concern and focus is only on the client and he will recommend his BEST SOLUTIONS for his clients.
His or her own commission will be irrelevant and not a crucial decision factor in financial planning unlike “someone you know who”, who has been recommending whole life insurance for over 30 years, and suddenly change his stand and say term insurance is the best.
Anyway, it is no secret, that agents earn higher commission on whole life. Our concern as policyholders of NTUC Income is just, we want agents to do financial planning for us and recommend solutions to fulfil our needs truthfully.
#4. They never told you that whole life plans were useful for rich people who had estate duty concern(repealed) or people who were rich to leave a legacy.
#5.They told you that you needed whole life when you were old. For what?
#6. They told you that you needed a CI when you a were old and frail when you actually needed an H&S.
#7. They never told you that whole life was a good source of revenue to the company as long as you keep your policy in force.
#8. They never told that that a ‘BOMB” was awaiting you when you were old.
My tender, loving care answer: Whole life insurance is useful for EVERYONE.
What are you talking about?
#9. They never told you that your whole life coverage never increased over time
but they told you the opposite.
#10. They lied to you that your your policy protection increased over time to take care of inflation.
#11. They lied to you that the return projection was guaranteed.
My tender, loving care answer: Is Zhummeng lying? or the agents? Which is which?
#12.. They lied to you that you could rely on the cash value for your retirement.
My tender, loving care answer: That is why again, financial planning is needed to determine the amount of cash needed by the policyholder upon retirement, instead of recommending term insurance as a “one-size-fit -all” solution.
Whole life insurance cannot be used exhaustively, yet can be included as part of the retirement plan of a person.
#13. They lied to you that whole life would take care of your needs for ever.
#.14. They lied to you that term might lapse and never told you you could earn a lot more from investing directly yourself.
#15. They lied to you that you stop paying when you completely paid up your limited premium term.
My tender, loving care answer: Clearly for now, Zhummeng is still confuse of the objective of whole life insurance.
The objective of whole life insurance is coverage upon Death, Disability and Dread Diseases in ANY GIVEN CIRCUMSTANCES.
Returns, length of premium payment, is all, out of the equation.
#.16 THEY NEVER TOLD YOU THEY WERE INCOMPETENT TO HELP YOU WITH BTITD
Zhummeng…dont be emotional, okay?
Most of these advisers whom I met are well trained and equipped with pertinent knowledge needed to give quality advise to their clients.
Anyway, you are free to choose your advisors right?
To declare the majority as INCOMPETENT is rather fluffy.
We, policyholders of NTUC Income can see your unrelenting effort, yet we appreciate if you could articulate your assumptions intellectually instead putting a label to a group of dedicated, hardworking and noble individuals.
You need to do soul searching.
JustMe, thank you for your commendations.
Btw, just to reiterate that I am not an agent or an employee of NTUC Income and I dont belong to the finance/insurance industry either.
JustMe, you have made a correct decision to have whole life policies.
Treat that as a base and use term insurance to ENHANCE your coverage.
Just remember, what The_truth mentioned.
Anything you do, go by objectives.
Best Regards,
The_truth
The truth prevails again….
Whole Life Insurance for everyone ( :
From the view of a humble, typical policyholder of an insurance policy like me, the objective of whole life insurance is coverage upon Death, Disability and Dread Diseases in ANY GIVEN CIRCUMSTANCES. (I copy and paste from my earlier post to prove that Zhummeng is not attentive enough or simply ignorant)
Returns, length of premium payment, is all, out of the equation.
Policyholder like us, want an insurance policy that satisfy our needs.
Why will you still be adamant to deny the needs of us, policyholders of NTUC Income?
You are doing an injustice to many, by subscribing and bolstering an idea, where it will only benefit one person, uhum….you know who….
Comments edited by moderator.
Note: Please stick to the issues raised in the article. Personal attacks will not be allowed. Thanks.
The truth prevails again….
Whole Life Insurance is for EVERYONE ( :
Insurance roadshows seem to have an ubiquitous presence. You can hardly escape them .I have made an observation and I am really amused by the difference in the roadshows by the different companies.
Either the booths are bare with one poster to indicate their presence or with a lot of posters resembling an exhibitions. The approach by the insurance agents is also different. Some merely interview or pretext of survey or merely collecting leads or hard pushing and touting of products. Another difference is the agents of other companies are young and pretty and handsome and the agents of ntuc are usually middle aged , of course occasionally you find a young man or woman
The most lavishly decorated booths are the ntuc roadshows with a lot of posters like an exhibition. I guess they have to make up the age of the agents by more colourfool posters.They can afford the lavishness because, I heard, they are sponsored by the company whereas the others are out of the pocket of agents.
It is quite an interesting experience to be touted by ntuc agents . Unlike the others the first thing the ntuc agents would do , for sure , is to introduce you a product and she or he would rattle off the beneffits and features hopefully that one of the benefits might spot on your needs. If it fails to whet your attention , a tour will be conducted around the posters like what you would experience in a time share sales presentation, again hoping that one of the posters might hit your soft spot.
If the tour is unsuccessfool then comes the trump card, the electronic presentation of their flagship products revosave and vivolife.. This is torturing. It is long and boring and you hardly understand what is going on.and I believe it is intended to wear down your resistance until you get “tolong” and give in. This is way the agents hard push the products and i notice that it is a trade mark.No wonder they are well known for product pushing and known in the market as the kings and queens of product peddling .
One caution to consumers is NEVER, NEVER buy your financial products at roadshows. Your needs are never at the heart of the process. The agents’ commission is. Simply, there is not enough time to conduct an need analysis for you.They never do. It is hit and run. But if you need a product try arrange another time to talk over it and remember to ask a lot of questions so that you would not be cheated by glib tongue salesmen or women. Some of these product traffickers are so good that they can even lure a bird down from the tree.
zhummeng,
Again, the readers of this blog can see through your fluff, deviating from the main topic, “The truth about life insurance”, in a desperate attempt to thwart the attention of the innocent readers of this blog, from the main topic.
Financial advisors doing roadshow are like angels to the public.
There are some who are ignorant on the importance of insurance, some who are ignorant of the needs to save money for their child’s education or retirement, and who is the one who enlighten and save them all?
Agents from roadshows, of course.
Some of us, the public, are very busy with our jobs, with our lifes, that we neglect our financials till the point, it become very critical in our lifes.
When these agents meet us, it comes like a blessing from God.
They are the one, who fact find us, till the point we realise that, we NEED whole life insurance, and we get em….
When we see, that there is a NEED for us to get life insurance, and when the agents explain to us so clearly, on what we are getting, isnt that GOOD for both sides?
Good for the agents.
…and good for the policyholders like us.
Good for both sides!
P.S.: Hope Zhummeng wont deviate far away from the topic again.
theonlinecitizen.com, please moderate my comments on May 25th, 2008 8.59 pm asap. Will love the public to hear the truth :)
A reminder to everyone:
Please do not engage in personal attacks and name calling.
We have disallowed or edited some of your comments as they were engaging in these.
Thanks.
Another interesting experience I had at the roadshow was the agent proposed a very ingenious insurance package of ” buy one and get one free”. It was too good to be true . On the face of it , it looked good but i had a hunch that it was a trap. The agent proposed that i buy revosave and use the cash backs to fund vivolife . Well, i wonder how many fell for this ploy and lived happily ever after.
Perhaps, instead of condemning the scheme it would be fairer to let the agents of these products to defend or to show us how this arrangement of ” buy revosave to fund vivolife” would result in greater benefit to the customer. I haven’t gotten any figures so I can’t mathematically come to any conclusion. I will get to the bottom of it and if it does result in greater benefit i will certainly promote the idea but if it is another ‘bluff’ by insurance agents I will not hesitate to expose the ‘scam’
Anyone with this experience can share with us.
Is NTUC Income Board so blinded to early “retire” Mr Tan Kin Lian, if he is so superb in bringing up all such issues to champion for the public and in educating the public about insurance?
Should not the Board retain him as a CEO than taking a drastic action to retire him while still searching for a CEO then as was reported in the media then?
I am really quite puzzled?
I will like to recall a ‘allegation’ I posted on 25th May and which has yet to receive response from perpetrators of whole life. My allegation is that insurance agents lie or misrepresent that whole life protection value increases with time and therefore a hedge against inflation. I contend that the protection value doesn’t increase and in some cases decreases and yet you pay the same premium. A lot of customers have been taken a ride .What about it?
zhummeng & Simple Minded is deviating from the point of contention.
“The truth about whole life insurance”
Anyway, no insurance agents have mentioned whole life protection value increase with time, and no insurance agents can contend that whole life insurance is a good vehicle to hedge against inflation when the main OBJECTIVE of whole life insurance is indeed PROTECTION against Death, Disability and Dread Diseases in ANY GIVEN CIRCUMSTANCES.
If any agents says that, Zhummeng is free to report them to MAS or LIA, or best, bring them to public. If Zhummeng cannot find them, then no use to create assumptions that is baseless and simply doesnt exist.
I quote Zhummeng’s saying “protection value doesn’t increase and in some cases decreases and yet you pay the same premium”….
Doesnt that sounds like decreasing term insurance as propose by your mentor?
Anyway, I applaud Tan Kin Lian’s willingness to listen to the new NTUC Income management stand, in restructuring the bonus for the benefit of us, the policyholders of NTUC Income.
His action shows that he is a good leader, who is willing to listen and who will fight for the rights of the many.
Congrats Mr Tan Kin Lian! Even us, whole life insurance advocators respect you as a leader.
I am not getting any response to the ” buy one get one free” schame posted on May 26th.I wonder how many more have fallen victims by now.
Meantime while waiting for more info from my agent I hope some noble insurance agents will come forward to enlighten us of latest schame . I hope this is not churning or replacement taking new shape or being reshaped. It seems old products can be reshaped to look new. We all must be careful lest we bring home to discover a retro product reshaped or restructrured.Nowadays it is matter of word usage and they may appear very different although the difference is nano nuances.
I am also not getting any response from zhummeng on his allegation he reiterate on May 26th, 2008 4.29 pm. I wonder how many more have fallen victims to his baseless assumptions by now.
Meantime while waiting for more info from zhummeng I hope some noble insurance agents will come forward to enlighten us on how life insurance has helped their clients when in need.
My family has benefitted from whole life insurance, and I am very sure, many out there can attest to that fact, whole life insurance is a must-have for everyone.
You mean you have made some claims ? Congrats. The ‘benefits’ must been a great help to someone. Sure, many found that their families they left
behind are languishing in poverty and some are on the dole. They are waiting for these unscrupulous agents to join them so that they can track them down at the 18 levels of hell and report and testify against them to the ????. Sure, it is a great attestation of detestation of insurance agents.
Zhummeng, may i know your age group? you sound so emotion.. the way you reply is like kids. Using words that not a mature person using.
zhummeng has again made assumptions, assuming “many found that their families they left behind are languishing in poverty and some are on the dole”….which simply is NOT TRUE.
BWBUI (Buy Wholelifeinsurance Before U Invest) concept requires everyone to buy a whole life insurance plan and use term insurance to ENHANCE his coverage.
So, you see, there is no way, policyholders who adhere to BWBUI concept can go wrong, or be critically underinsured.
It is a clear predication that Zhummeng’s claim, “many found that their families they left behind are languishing in poverty and some are on the dole” is rather UNINTELLIGENT and simply UNFOUNDED.
hope Zhummeng understands what he tries not to understand.
Source: (copy and paste from my previous postings, May 25th, 2008 12.49 am)
So surprised to see the debate btw Zhummeng & the_truth. i’m a policyholder of a whole life policy and i strongly agree with the_truth’s posting. Term are an enhancement in a whole life policy, i added a term rider to it. I had a very trustworth agent which gives me the transparency of what Insurance is about and what’s the different between each of them.
What’s Zhummeng was trying to tell us that term offer better coverage and premium and invest the rest. But for policyholder who have low income might feel that protection is more important to the family than seeing whether the policy gives good return or not. One of their worries are also whether can they substain their policy if they were jobless.
Whole life policy are much much more higher in premium but it carry some value to it.These values are like deposit in the banks which they can exercise some loans or use to pay for the premium in case of retrenchment.
After some much explaination from my agent, i also get to know that Insurance claims are collected from a pool of premiums by many policyholders contribution. In directly i’m paying claims for someone else, which makes me feel good about it is,i help out with people and so does others help me too.(cos we will die one day)
So the_truth,your concept of BWBUI i agree with you. I would encourage every singaporean to have a whole life policy first before any insurance policy.
Lastly i see there is no need to waste our time debating which is which better, if Zhummeng thinks term is always the best, then go AHEAD! cause it’s your choice in your decision but don’t “kill” the insurance agents because of a few black sheeps.
Mr. L, you missed the point and you contradicted about whole life products. Of course, there will always be a debate between the “ethical and unethical” on which is best for the cleint or for themselves. There is always this struggle. Whole life eventually gets the better of the agents. I don’t know where you have learned about having whole life as the first and then followed by the term.
You talked about the poor , the coverage and then the cash value available and you got yourself into a knot that you don’t even know which is the priority.
Let me give a scenerio.
There is this man, aged 30 the bread winner who earns $3000 per month. He stays in a 3room HDB flat. which is still under mortgage.He has 3 daughters, aged 2 to 8, His wife is a full time house wife.His take home pay is $2400, and home monthly expenditure is $2300. He can spare $100 for saving.
His concern is what if he is not a round and what if he is afflicted with a dread disease and he has other concerns like his children’s tertiary education, his retirement, loss of job and ect.
On analysis his need for dependents’ income is $500K to raise his 3 kids till financially independent; Their tertiary education is $200K by the time they go to university; the wife’s retirement after the kids left the home is $720K; the man’s CI coverage for 5 years of his salary is $150K. His other needs have to wait until he earns more money.These are his priorities. Assume the figures are in future dollars.
Mr. L, and the _ truth, what would you recommend to this man. Let ‘s see how you can help and advise this man. I am sure this scenerio is common, right.? Don’t worry, I would not fault you. I am assuming both of you as layman, as policyholders with little knowledge of insurance.. Just use commonsense. The figures are already crunched for you so it should be easy for you. Maybe ,consider this man your good friend so you can give him your best BEST recommendation and counseling.
Why not we let, Zhummeng post his BEST recommendation to his own scenario.
I am sure this scenerio is common, right.?
We will LOVE to hear from you.
Don’t worry, I would not fault you. I am assuming you as layman too, as someone with little knowledge of insurance..
Just use commonsense. The figures are already crunched for you so it should be easy for you. Maybe ,consider this man your good friend so you can give him your best BEST recommendation and counseling.
Hey Zhums
Dont you love the Tag Team ? And it looks like using office time and resources too ! Haha.
Hope to see all of you at the ntuc agm commencing in 22 hours time – to hear all spout the truth about Bonuses and Life policies.
Game on ! Not for the faint hearted !
: )
Okay…The truth is out….
Zhummeng, himself do not have an answer to the scenario he post.
That is simply brilliant!
So, the time have come, for us, both term and whole life insurance advocators to stand side by side, arm to arm and ACCLAIM the motion that, indeed whole life insurance is IMPORTANT & NEEDED by everyone.
Everyone need to have a whole life insurance protection for themselves.
Thank you! ( :
Zhummmeng,
If I were you I will not waste time on these ghost writers. They have plenty of time and vested interest to try to pull a fast one. Just ignore them. The real policyholders do not have so much time to quibble with juveniles. Let them talk to themselves. Their conscience will prick them during the last two years.
Cannon is a typical ghostwriter who try to discredit innocent whole life insurance policyholders like us.
We feel sad and sorry for him. ) :
We introduce facts and figures, unlike the opposing side who create unfair labels, remarks and carved baseless assumptions on our beloved agents, who have worked so hard to explain to others on the NEED to have whole life insurance plan.
Our proposition remains clear.
Term insurance can only be use to ENHANCE a person’s coverage and not use as a base, or as a “one-size-fit -all” solution.
BWBUI (Buy Wholelifeinsurance Before U Invest) concept requires everyone to buy whole life insurance before he invest any of his money.
This is because, he will never want to be force to liquidate his investments at the wrong timing, to provide cashflow when he needs the money urgently.
So, where does term insurance comes in?
Term insurance can then be used to enhance the person coverage, to ensure he has sufficient insurance protection.
So, you see, there is no way, policyholders who adhere to BWBUI concept can go wrong, or be critically underinsured.
Therefore, it is a clear, that Whole Life Insurance is important to everyone. ( :
To Zhummeng, How to advise this particular person as i’m not train to do so. I will ask my agent about this example.
Meanwhile from my point of view, if i’m the person who earn $3000 per month and left with $100 after the deduction. I would want to do some reflection on where did my money gone to?there’s no savings left and i just pass day by day.If i do spend so much on my expenses, do you think i would want to spend on insurance? this sound not practical in real life ba.earn $3000 should have excess saving if he would properly plan. I believe an agent who do planning can look into his problem.
Ya he might need high coverage but then is term substainable if he was to out of job?he will have problem finding money to pay for his expenses but with a whole life policy i know we can use the value in the policy to pay up for the time being, at least he will still have the coverage.term can’t do so…so what if term cover high coverage but lapse the next month?
High commission for agent for whole life then term…I believe there is no free lunch in this world. Charges are meant to pay for the service for those agents and if we felt that the charges are high, how about those charges we are paying everyday?for example,a bowl of noodles value to be around less than $1 of it cost but we paying $3.50 ~ even $5 per bowl!!! how much percent more????If we keep having this mindset of not letting the agents to earn high commission, i believe they will extinct together with the DINOSAURS~!
I’m here not to debate but to share my point of view in doing business…
To the_truth, i strongly agree that term insurance may be an enhancement to the whole life policy if the coverage is not enough.
To Mr. L
I will wait for your agent to come with a best recommendations . Please let us know.
I will also answer some of the points raised by you.
Indeed, insurance agents WILL become dinosaurs.
To zhummeng,
Since you acclaim, majority of the agents out there are downright unethical, we, policyholders of NTUC Income will be patient enough to wait for you to come with your best recommendations .
A long wait is worthwhile since, it comes from the ethical ones. ( :
The_truth
It seems that Zhummeng needs DAYS to propose recommendations to HIS OWN scenario.
We, policyholders of NTUC Income are waiting, patiently…. ( :
The below is reproduced for your readers to see how a so called independent
consultant can sometimes fall into the trap of conflict of interest. This was posted in Mr. Tan’s Blog.I thought it quite relevant to share it here.
I recently read an article by Nick Dumbreck (an independent actuarial consultant engaged by NTUC Income) about terminal bonus. I wish to send the following comments for posting in your blog.
Yew Ming
Nick Dumbreck (ND): “Limiting the build-up of guarantees enables with-profits assets to be invested more freely, with a significant proportion generally being allocated to equities – and in some cases property. These are expected to generate better returns than bonds in the long run. So a higher guarantee may result in a lower payout as compared to a policy with a lower guarantee and greater investment flexibility.”
Yew Ming (YM): Let’s look at the facts in the public domain :
AIA’s parfund (2006 : equity allocation 15%, capital adequacy ratio 420%)
Aviva’s parfund (2006 : equity allocation 20%, capital adequacy ratio 320%)
GE’s parfund (2006 : equity allocation 26%, capital adequacy ratio 190%)
Prudential’s parfund (2006 : equity allocation 40%, capital adequacy ratio 280%)
Income’s parfund (2006 : equity allocation 31%, captital adequacy ratio 170%).
Note that MAS requires 120% minimum capital ratio. At best, this gives significant amounts of sleep for senior management and their actuarial consultants.
Also, renowned economist Robert Shiller (Irrational Exuberance) has this to say : “The evidence that stocks will always outperform bonds over long time intervals simply does not exist. Moreover, even if history supported this view, we should recognise that the future will not necessarily be like the past”
And lower payouts from reversionary bonus payers (i.e. Income) compared to terminal bonus payers (i.e every other company)? I really doubt this. Income policyholders who have collected his/her policy payouts will know better.
ND: “My experience is that given the choice between a higher expected payout and a lower guaranteed minimum sum on the one hand, and a lower expected payout but a higher guaranteed minimum on the other, most policyholders would opt for the former. Indeed the basic idea behind the with-profits proposition is that guarantees are limited but policyholders participate in any profits which arise.”
YM: This is an assumption made by ND about what the customers prefer. I think companies should never assume what customers want.. Simply ask, and you will know the answer.
ND: “Unfortunately it is not practical to accommodate the different aims of individual policyholders. It is for the board to decide, in the interests of policyholders collectively.”
YM: How impractical is it to send a letter to the policyholder to ask him/her which bonus structure he/she prefers?
ND: “As yields on long-dated government bonds fell from over 10 per cent per annum at the beginning of the decade to less than 4.5 per cent at the end of 1998, many companies were slow to cut annual bonus rates despite having high exposure to equities in their participating funds. This led to reduced free assets, and several mutual firms were forced to demutualise to restore a satisfactory solvency position.”
YM: There is NOTHING wrong with annual/reversionary bonus. The root cause of insolvencies was “companies were SLOW TO CUT annual bonus rates”. Maybe because the industry wanted to illustrate high bonuses to compete for new business and targets high growth rates to impress shareholders.
ND: “Onerous benefit guarantees were a big factor behind the closure of Equitable Life, Europe’s oldest mutual life company in December 2000. These examples show the importance of addressing the balance between guarantees and providing attractive returns in the long term.”
YM: The real reasons for Equitable’s failure are found in http://news.bbc.co.uk/2/hi/business/3547441.stm
Quoting the report – “Dubious practices, used by ALL life insurers to varying degrees was to STOP ALLOCATING BONUSES in the form of REVERSIONARY bonuses. These were guaranteed and had to be counted on the life insurer’s accounts as a liability. Instead, an increasing LARGE CHUNK of the bonuses allocated to policyholders took the shaper of TERMINAL bonuses. These could be added or cut with impunity and without affecting the company’s solvency – even if they did affect the value the customer EXPECTED”. Unquote.
I think, the British Courts finally ruled that these terminal bonuses have to be paid, thus critically damaging the Equitable.
Reversionary bonus (after declaration) are guaranteed and thus needs to be actuarially reserved. This imposes discipline on the financial management of the insurance funds. Terminal bonus on the other hand, is an “actuarial sleight of hand”. It breeds complacency and gives the senior management a false sense of security.
ND: “Switching to a lower annual bonus and higher final bonus will align to industry best practice, improve investment freedom and make it easier for the insurer to deliver yields to customers. It will also improve the resilience of the participating fund.”
YM: The funny thing about “industry best practices” is the industry is often behaving like lemmings.
Quoting Warren Buffet – “the behaviour of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated”.
And, we don’t need to look far for evidence of lemming-like industry “best practices” e.g. subprime mortgage debacle, tech bubble, the recent global property bubbles, LTCM/Enron blow-up.
I used to view Income’s management as standing independent from the sheeples (hybrid of sheeps and people).
Take for example Warren Buffet’s description about one of his senior managers at Geico, Louis Simpson : “He derives no pleasure from operating with or against the crowd. He is comfortable following his own reason.”.
ND: “In short, both policyholders and the insurer stand to gain from this new bonus structure. The lessons learnt from the UK market serve as a painful reminder of the potential consequences of resisting change in favour of the status quo.”
YM: In short, Nick Dumbreck’s misleads the uninformed public with THEORY. And we all know, theorectically the recent credit crisis is a 25-sigma event ie happening once every GOOGOLIAN years (1 with 100 zeros behind).
Lastly i wonder what percentage of Singaporean life actuaries invest/save in With-profits-Terminal bonus life insurance? I suggest that the local actuarial institute conduct a survey of this very telling stat
zhummmeng simply avoids, providing his own personal recomendations to the scenario he post on May 29th, 2008 1.45 pm, simply because he recognises that, by now, term insurance cannot be used as a “one-size-fit -all” solution.
We need to integrate whole life insurance plan, to make the solution more exhaustive, more complete.
We understand that ( :
but then Zhummeng,where goes your credibility?
….after denouncing life insurance as irrelevant,repeating your baseless stand that majority of insurance agents as unethical, you just simply copy and paste, “irrelevant” materials to confuse the readers?
That is not gentleman, you know ( :
Dont worry Zhummeng…Just post your “new found” stand that you support whole life insurance and the deeds and goodness, whole life insurance agents have done.
We will accept you, graciously as one of the most humble, intelligent, whole life insurance advocators in the whole of Singapore.
Whole life insurance is for EVERYONE ( :
The_truth
I am very irritated by The-Truth who kept saying “we policyholders of NTUC Income”. You do not represent all policyholders of NTUC Income. I have more than 10 policiies from NTUC Income, and I am sure the over 500 policy holders of NTUC Income do not concur with you. Stop using our names to justify your cause! Speak for yourself if you must, but stop pretending to be others when you are not. Speak the truth or otherwise remain silent.
“RealPolicyHolder”…
Dont be too emotional…. Relax ( :
Out of 310,000 policyholder affected, about 600 is challenging the bonus restructuring exercise which tantamount to only a small minority of 0.193%.
I am part of the silent majority, who supports NTUC Income management directions to act in the best interest of us, policyholders of NTUC Income.
Btw, lets go back to the topic, “The truth about life insurance”.
Never deviate from the point of contention again ya..
Whole life insurance is for EVERYONE ( :
I’m Back with some recommendation from my agent. Probably the person need to do a financial planning and from the finding he can do some adjust in his spend and start off with a whole life policy package together with a term and Shield plan.
If the person could not find anymore budget in his savings,Shield plan is the priority and start off a lower coverage of whole life together with a term. In the future, agent will need to do review with him yearly.
YA the_truth, who are you representing?Although you strongly support whole life policy as you see the importance, not everyone would see the same views with you.
Whole life don’t suit people like Zhummeng.
Scenario given my zhummmeng:
- Man aged 30, bread winner,who earns $3000 per month.
- He stays in a 3room HDB flat. which is still under mortgage.
- He has 3 daughters, aged 2 to 8,
- His wife is a full time house wife.
- His take home pay is $2400, and home monthly expenditure is $2300.
- He can spare $100 for saving.
My view (not agent, just layman):
- Tertiary education is lowest priority. If the children can get into local university, they can apply for bursary and take loan. The children must be informed that they have to work hard for their future. They can teach tuition to earn allowance while studying in uni. On a personal level, I have taken this path. For a fresh grad, one can pay off the full loan after scrimping and saving for 2 years. This should be seen in positive light that it builds the character of children strongly. No point saving $200K if they are lazy, want to take easy way of going overseas to study and do not appreciate hard work ethics.
- He should next cut down on expenses. If there is car, cut it off asap. Learn to live minimally. If expenses remain as they are, he is in a bad financial shape. I assume he should be able to cut and save $500 per month. Forget the exotic holiday trips till he can save $500 per month.
- Now, he has $500 per month savings (assumption).
- Do not buy H&S plans with cash. Instead use Medisave to buy Medishield for himself, his wife and all his children. With his limitations, the government Medishield is the best.
- Do not buy whole life. It will kill him financially. Buy a decreasing term for himself and his wife. I think $100K coverage should be ok
- With the remaining, build up the 6 months reserve.
- After the 6 months reserve is built, invest 80% in low cost ETF or index fund. 20% invest in himself for self-improvement and enhance his career prospects. Do not buy exotic financial instruments. Rule of thumb is do not buy complicated products. In fact, his wife can try to find ways to earn an income while at home.
zhummmeng, glad to see u have moved from TKL’s blog to here. were you at AGM? I was there. did u ask any questions? I was passive watcher.
Can I invite more to contribute to this scenario contributed by zhummmeng? Instead of immature squabbling. I walked the talk and have contributed as above.
Any qualified agents can contribute your idea?
Policyholders like us, LOVE choices.
We love alternatives ( :
What about Zhummeng?
Yes, blackbox, do invite more people to engage on this healthy discussion. You kind effort is deeply appreciated. ( :
Hi Blackbox…
Why the person cannot afford for a private medical plan? cos his CPF contribution is $900 and interests for medisave is 5%. i would feel that he shall upgrade to better shield plan. current medisave cover up to $450, but fyi if i happen to stay in a B2 Ward for 20 days and i shifted to A ward due to some circumstances. the whole hospital bill will be charge A ward.
Why decreasing term not whole life? what if this person jobless?or can’t pay the premium?
I agree with blackbox that he might not need that high coverage!
Hi L,
You may be right. He may be able to pay for a private Shield plan. I am considering more of he has to pay for 5 people, so need to be careful not to deplete his Medisave. It may depend on how much he has in his account.
If the man is jobless, the 6 months reserve he built up will come into play. If he bought a whole life, I believe he may just surrender instead incurring a greater loss. Decreasing term is extremely low in premium, so it is sustainable.
A decreasing term works because he saves. The savings compensates for the decreasing coverage. Of course, the argument is that it is not inflation proof. This is just personally how I would do it.
Honestly, if he dies, the brutal truth is that the remaining members will just have to strive and work harder, with whatever estate he passes to them. This estate is not to over-compensate his death and thus, they don’t have to work. I personally feel it will be tough but manageable for his wife and kids. Some may disagree with this point.
For his income and savings level, I think he has to think hard and prioritize to squeeze the most from what he has. Of course, if he earns $6,000 a month with $3,000 monthly savings, I think he may choose to buy a whole life (though I personally will not), as it will not be detrimental to his wealth building.
Thanks, Blackbox and others for your contribution to the case study.
My is as below.
The man has 3 immediate concerns.
1.He is worried how his family would live if he should die unexpectedly.
2.He wonders if he will ever be retrenched.
3.What if he is afflicted with a dread disease.
Analysis of his financial circumstances and needs shows that he needs the following.
1.His family needs $500k to see them through another 20 years when his youngest daughter is financially independent.
2.If he should contract a dread disease he needs $150K to replace his income for 5 years.
3.If he is retrenched he needs 3 months at least, to take care of his family expenses($9K) before he finds another job.
However, his cashflow analysis reveals that he has $100 a month to spare and expenditure analysis shows no further amount can be freed up. His $100 has to be stretched.
My recommendations are in the following.
1.. Buy an I-Term of $500K on a 5 year renewal term for $30 a month to take care of his family upon death
2.Buy a $150K Living Benefit on a 5 year renewal term to address his CI need for $14 a month.
If he dies first his family will receive $650K (500K +150K)
3. Save the $50 in a saving account to take care of emergency needs like primary medical care need and other cash needs as they arise. Over long term he should build up his emergency fund.
4.To address retrenchment there might be a severance benefit from retrenchment if employment contract provides for it. Otherwise pray hard that it will not happen until he has set up the emergency fund.
5.To build up the emergency fund which includes his housing mortgage and insurance and to provide for other needs he might want to take up a part time job by moonlighting as insurance agent, property agent or any job that will bring in additional income.
6. to take care of his family’s medical H&S needs and his own , CPF medishield will be sufficient in the meantime. The premiums are to be paid out of his medisave. If his wife had worked before becoming a full time housewife she should have a medishield plan. Review them at later time.
7. His housing mortgage and insurance are to be paid out of his CPF contribution.
8. The children’s tertiary education and his wife retirement needs to be postponed for the time being.They and other needs are to be reviewed after a year.
Conclusion:
Before this, the man had no idea there were so much to be done. He didn’t know that he had so many needs. Now his major concerns are taken care of and there is real peace of mind. He can now focus on his moonlighting job knowing that if he should drop death his family will be adequately provided.
After analyzing the ideas proposed by Blackbox and Zhummeng, I find the ideas that they bring forward, “very good”.
The proposal proposed by both Blackbox & Zhummeng is “very good” because they suggest:
1) “Do not buy whole life. It will kill him financially. Buy a decreasing term for himself and his wife.” (Note:Both recommend term insurance.)
THEIR ASSUMPTION: Decreasing term insurance is cheap. The excess money, can then be used for savings.
If they buy whole life insurance, there will be opportunity cost in the money that can be used to earn higher return fulfiling their other objectives.
2) Do not buy H&S plans with cash. Instead use Medisave to buy Medishield for himself, his wife and all his children. With his limitations, the government Medishield is the best. (Both contends that Medishield is enough)
THEIR ASSUMPTION: Again, same rationale. Save more money, invest, earn higher return to fulfil other objectives.
My view: I agree with both blackbox and Zhummeng, of the need to analyze the person spending habit.
Categorise his expenses into 2.
1) Fixed Expenses
2) Variable Expenses
Give him ideas on how he can reduce his variable expenses, so that he can do more savings for himself.
Get his whole family involved, when doing the categorisation of expenses, so all can appreciate, the need for savings, to fulfil pertinent objectives that they faced, as a family.
I agree that Zhummeng and Blackbox ideas are “really good”, but we, whole life insurance advocators have a much, much BETTER plan for this guy and the public.
Let us analyse the proposal above again:
1) “Do not buy whole life. It will kill him financially. Buy a decreasing term for himself and his wife.” (Note:Both recommend term insurance.)
My loud speaking RATIONALE says :Many term insurance advocators subscribed to the school of thought, that everyone who buy term insurance, have the discipline to save money.
Save money for contingencies, save money for child’s education, save money +++
First of all, we have to understand that not everyone have the DISCIPLINE to save.
Secondly, we have to understand that not everyone have the DISCIPLINE to MAINTAIN their savings account.
So again, the first fallacy, term insurance advocators have made is ASSUMING, everyone have the discipline to save, and everyone have the discipline to maintain their savings account.
So, that’s the first fallacy.
Second fallacy, is that, term insurance advocators seems confused of why they get insurance.
They mixed protection and returns.
To reiterate my earlier post, all of us have to understand on why we get insurance.
We get insurance not because it give good returns.
We get insurance to ensure that we want to ensure that we are well PROTECTED against death, disability, dread diseases in any WORST CASE SCENARIOS.
The emphasis here is PROTECTION in any GIVEN CIRCUMSTANCES.
Term insurance can only be use to ENHANCE a person’s coverage and not use as a base, or as a “one-size-fit -all” solution.
Let me give you a scenario here.
Example: Out of job
Economic turmoil in year 1997 had witnessed many in losing their job, and many in turn lapse their term insurance policy due to this setback.
Term insurance advocators, who in need of money at this point of time, may have to FORCE to liquidate their investments (sinking fund) at the wrong timing.
This may result in an unfortunate monetary loss for them.
So, what should he get then?
NTUC Income Vivolife policy.
In contrast, with Vivolife, BWBUI advocators need not pay premiums up to 6 months, giving them time, to coordinate his next best action, without sacrificing their insurance policy, which they NEED most at that critical point of time.
He do not need to, as what Zhummeng mentioned “Otherwise PRAY HARD that it will not happen until he has set up the emergency fund.”
He dont have to worry about that because the structure of whole life insurance have already taken care of all his worries.
Now, for the second focal point of discussion.
2) Do not buy H&S plans with cash. Instead use Medisave to buy Medishield for himself, his wife and all his children. With his limitations, the government Medishield is the best. (Both contends that Medishield is enough)
My loud speaking RATIONALE : Again, in financial planning, we should never be confuse of the objective, when we are taking a particular plan.
A simple analogy.
You eat because you are hungry.
You drink because you are thirsty.
You sleep because you are sleepy.
You get medical insurance plan, not because you want to save money now, but because you WANT TO GET THE BEST MEDICAL INSURANCE COVERAGE, when in need.
Okay…SO guys, stick by objective.
I recommend, him and his family to get a private medical insurance plan, complete with a rider.
His medisave is earning 5%, every single year.
This earnings can help to subsidise his premiums year by year, and even enough to pay for his basic plan, when his medisave have grown, and the 5% return he is enjoying, is more than the premium required.
He just need to apportion part of his money, for the rider which is generally payable in cash, also on a yearly basis.
So, Zhummeng and blackbox.
Remember ya, when you get insurance, it is the PROTECTION that we are looking at, and never, ever on returns.
PROTECTION against Death, Disability, Dread Diseases in ANY GIVEN CIRCUMSTANCES!
Whole life insurance is for EVERYONE! ( :
You whole life blare and blare about wholelife without knowing what you are blaring for whole life. You win, lah!!! Blackbox, let him win,ok ?. Everybody, let him win Ok?
onlinecitizen, let him win,Ok? you see, u like to win, we let u win. happy?
zhummeng,
We, policyholders of NTUC Income are just articulating our stand.
If you find the facts I introduced is incorrect, you are free to refute it with your own justifications.
My family have benefitted from whole life insurance, and it is my sincere empathy, care and concern to see people like you, blackbox and the rest of the term insurance advocators, begin insuring with whole life insurance.
Whole life insurance is for everyone ( :