Clap, clap for Tan Kin Lian

I say Tan's advice to buy term insurance, and shun whole life policies....Makes money sense!!!





Why only term insurance plans make sense now
Published in the Straits Times Forum page
MR GIDEON Lee ('Buyers, not agents, decide the products they want'; last Friday) asked why I am advocating term insurance when the insurance cooperative that I headed had been selling whole-life and investment-linked policies for 30 years.

During my time, the whole-life and endowment policies were sold with distribution costs that were much lower than comparable products in the market. The effect of deduction was about 20 per cent over 25 years, compared to the 40 per cent for most policies today.

In the past, the cooperative also distributed high rates of bonuses out of the surplus, giving a high yield to policyholders on these old policies.

The letter writer quotes the example of a term insurance premium that charges $200 a month. This is an exaggeration. A young person can buy $300,000 in sum assured under the Singapore Armed Forces (SAF) group insurance scheme and pay only $38.40 a month. This is available to SAF soldiers and operationally ready national servicemen, and their spouses.  To buy this amount of protection under a whole-life or unit-linked policy, the consumer usually has to pay a premium that is 10 to 20 times higher.

Some dishonest agents deliberately quote a higher cost for term insurance to persuade the consumer to buy the alternative policy that charges a higher premium and pays a fatter commission.

Mr Lee said correctly that the distribution cost is not paid entirely as commission to the agent. Part of it is paid to the agent's manager and spent on lavish overseas trips and other sales incentives. Regardless of how the money is spent, the consumer does have to pay the total distribution cost.

The writer said the commission is given for selling the product and not for advice. If this is the case, why are these people called financial advisers, consultants or other impressive names and not life insurance salesmen?

The writer is wrong in saying that I am advocating a one-size-fits-all solution. My aim is to educate consumers
to invest their savings in a low-cost investment fund, rather than a life insurance policy, to earn a better long-term yield and achieve greater flexibility. 

Tan Kin Lian
www.straitstimes.com/STForum/Story/STIStory_603264.html

Two key factors insurance buyers don't know
Published in the Straits Times Forum Page
 
I REFER to the reply by Mr Jeffrey Tan,
president of the Insurance and Financial Practitioners Association of Singapore
('Choice of insurance plan hinges on affordability, buyer's needs'; last Friday).

In buying a product, the consumer should be aware of its price.
This is especially important for a life insurance policy,
which requires a large sum of money to be paid over many years.
For most people, this could be the next biggest financial commitment
after the mortgage on their home.

Consumers should learn to read the benefit illustration of the life insurance policy
and look for two key items: distribution cost and accumulated savings.

The distribution cost is
the amount that is subtracted from the consumer's savings
to pay for the advice given by the agent.

Typically, the distribution cost takes away one to two years of the premium.
So, if the premium is $500 a month, the distribution cost could amount to $12,000.
Is the insurance agent's advice worth that much to the consumer?

The deduction results in a portion of the accumulated savings
being taken away from the consumer.
This portion could be more than 50 per cent after 30 years.

If the accumulated savings is $300,000,
the consumer could be giving away more than $150,000.
The net yield earned on the savings is usually insufficient to cover inflation.

So, how can the agent claim to be giving good advice to a consumer
by selling this policy?

In his reply, Mr Tan stated that not all term insurance policies
pay a lower commission than traditional whole-life and investment-linked policies.
I disagree.


If a consumer buys a term insurance to cover $300,000,
the premium should be less than $400 a year.
The agent may be able to earn $400 in commission over a few years.
If the agent sells a whole-life or investment-linked policy,
the agent may be able to earn more than several thousand dollars in commission.
Unsurprisingly, most agents prefer to sell the policy
that pays a fatter commission.
They tell consumers to avoid a term insurance policy because it does not give any return.

However, consumers are not aware of how much they will be losing
in a whole-life or investment-linked policy.

Tan Kin Lian
www.straitstimes.com/STForum/Story/STIStory_601304.html