Insurance & Costs of having and raising a child

(28-03-2012, 09:08 PM)Bibi Wrote: I talk till my mouth dry yet my bro-in-law still went ahead purchase a Investment-link policy from his wife's friend. The agent somehow convince him its cheaper to buy investment link policy then to purchase term and funds separate. Some people just need to learn lesson the hard way.

Disclaimer: I am not an insurance agent.

I bought an ILP when I started working. I wanted to surrender the policy after several years but realized that it is indeed cheaper to maintain the ILP than to switch to a "buy term and invest the rest" plan. The plan that I have gives me $108 credits for every $100 of premium I pay. I channel the $108 credits into "non-volatile" money market funds. A portion of the units purchased then pays for the insurance coverage and that is cheaper than a term insurance. For the remaining units in the money market fund(s), I withdraw them asap (birds in hand).

Now, I am not saying that buying an ILP (i.e. a new policy) is cheaper. You got to do the sums. The premium in the beginning years contributes to the agent fees and leaves little for buying the investment units. My point is that if you have already bought one, it might be worthwhile to restructure it such that you can cash out periodically, making it a quasi-term-insurance, but only cheaper.

I believe ILP is not that bad compared to Whole Life Insurance. Whole Life Insurance really gives the worse of both ends(protection and investment return).

(02-04-2012, 02:31 PM)freedom Wrote: I believe ILP is not that bad compared to Whole Life Insurance. Whole Life Insurance really gives the worse of both ends(protection and investment return).

I like to suspect that ILP only works (ie. returns to unitholders >> agent fees+sales charge+mgt fee etc) in a bull market, ie. a rising tide just lifts all boats. Here is my experience:

I have an ILP (dollar cost averaging type) - During the bull market, i made $, excessive of inflation (but lower than let's say an index fund) with decent returns. However since GFC2008, although i dollar-cost-averaged through out the entire trough, because most markets have since never gotten higher than its 2007 peaks (they are not even close for the emerging markets), i am only breaking even.
To return a decent 5-7% per annum by the end of my lockup period - i have roughly calculated - the markets would have to surpass its 2007 peaks at that time.

So whether is it ILP or life or term or any other new insurance innovations, elements of timing and personalized needs has to be taken into account of. Let's hope by moving towards 'compensation based on advice' kind of scheme, we are making a step in the right direction.

ILP is not that bad provided the policy holder know what he is buying and what to do with it. During times of recession, the holder should do premium top up. When the holder reaches age > 55 years old, he should reduce his coverage.

If a holder knows nothing and simply kept paying premiums till he is 90 years old thinking he will be leaving a huge sum of money to his children. He will get a shock to discover there is not much money left in his ILP. In ILP, the coverage for a > 65 (?) years old person starts to get costly and it becomes exponentially costly as one age beyond that.

When i first bought an ILP from my cousin (due to my ignorance about insurance that time), i was thinking wow, for a mere S$100 monthly premium i can cover myself for S$200k (CI and death). So cheap compared to whole life! Of course i wasnt aware the coverage cost will simply keep increasing with my age and my dear cousin never told me that too.

(02-04-2012, 09:22 PM)weijian Wrote: I like to suspect that ILP only works (ie. returns to unitholders >> agent fees+sales charge+mgt fee etc) in a bull market, ie. a rising tide just lifts all boats. Here is my experience:

My experience is consistent with this. Years ago, I bought an ILP from an insurance company. It was sold to me as a unit trust but comes with insurance coverage of some $25K. For me, I treated it like a UT so when the time came to lock in my profit, I did and made some decent profit from it.

A letter from Gilbert Goh. I seriously think an overhaul is required!

The Straits Times
Apr 9, 2012
Why ex-Million Dollar Round Table agent backs MAS move

I SUPPORT the Monetary Authority of Singapore's call to implement a fee-based model for the insurance industry ('Financial advisory sector faces shake-up'; March 27).

I was an insurance agent for four years and did well enough to qualify for the prestigious Million Dollar Round Table twice. The job brought me more money than I could have imagined, but I was not satisfied that I had done my best for my customers; I was more keen on clinching deals than meeting their needs. I thus decided to quit at the height of my success.

Few agents would offer whole-life term policies to clients as there is very little sales commission to everyone down the line - even though the clients would have benefited from the policies.

Instead, agents would try to sell whole-life-with-returns or investment-linked policies as the commissions are at least five times those of term policies.

It would also be financially disastrous for the insurance company if all its agents sold whole-life term policies - the risk exposure would be extremely huge.

Of course, as an insurance agent, I would persuade clients to buy whole-life-with-returns policies as they will be getting something back when they retire, plus they are adequately covered. But many such policies lapsed after a few years as many people simply could not afford the premiums.

Commission-based agents hardly had time to rest as new sales targets loomed. Those who did not meet the targets for three straight months had to see their managers for 'counselling'.

Moreover, there are all kinds of incentives to motivate agents, for example, overseas conventions or industry awards. But there are also all kinds of deterrents to get them to quit if they are no longer producing sales. This is probably why the turnover rate for insurance agents is so high, and this affects service standards in the industry.

I do not agree with the pyramid commission system as the agents have to work very hard to survive, and some managers make millions simply by recruiting as many agents as they can, regardless of their quality.

A fee-based system, coupled with a small basic salary for agents, would go a long way towards raising the professional ethics of the industry. Only then will sales staff not simply sell anything that pays the best commissions. They will also take the time to better understand their clients' needs, and are more likely to be impartial when recommending products.

Gilbert Goh

AIA regional chief is missing the point here - The motivation for moving towards 'fee based' is NOT to get 'things cheaper' but align the carrot with the interests of the consumer.

But it is pretty easy to understand why he isn't supporting this - He is right at the TOP of the pyramid!

AIA against fee-based model for insurance agents

By Bryan Koh

The raging debate surrounding the potential replacement of the traditional commission-based model in insurance with a fee-only model remains a key concern for AIA Group, which believes this overhaul is unwarranted.

"I'm sorry to say that no one has done salary agents and proved that it is any cheaper than commission agents. If it is that easy and you can do salary agents cheaper, why aren't all companies doing it?" said AIA Group regional chief executive Ng Keng Hooi in an exclusive interview with BT.

This comes a week after Monetary Authority of Singapore (MAS) managing director Ravi Menon revealed plans to shake up the advisory landscape by reviewing the existing commission-based structure through the Financial Advisory Industry Review (Fair).


Under a fee-only model where agents and advisers are paid a salary, it has been suggested that agents may merely fulfil the bare minimum.

Conversely, Mr Ng added that commission-based remuneration promotes meritocracy, which acts as an incentive for agents who are paid only after they successfully complete a sale.

While the UK and Australia have already taken measures to ban commissions for financial advisers in a bid to ensure greater professionalism and transparency, it does not mean Singapore has to follow suit, said Mr Ng.

"We have to be careful not to look at the UK and Australia and say that is the best model and it is better than Singapore's. If you use salary agents, they can do very well or very poorly, and are still paid a fixed pay. I am not sure that it is much cheaper than on a commission basis."

Part of Mr Menon's proposed review also centred on relooking the multi-tier distribution structure, where supervisors stand to earn commissions on top of what agents earn. These commissions, embedded in insurance products, have been criticised for unnecessarily increasing the costs borne by customers.

Local cooperative insurer NTUC Income has already discarded the multi-tier system in an attempt to lower distribution costs and deliver greater value to customers, distinguishing itself from other insurers in the process.

But AIA Group is unlikely to follow in NTUC Income's footsteps, with Mr Ng commenting that this may not be a cheaper alternative and could inadvertently lead to reduced productivity.

"If paying managers on a salary basis is cheaper, most of the insurers would have gone there already. But you see - all over the world, and not just Singapore - no one has done it well," he said.

"Salary is a lot more complicated. Especially when the manager is older, productivity may go down. Ours is based on you delivering the sales and then you are rewarded accordingly."

Additionally, much has been made about insurance agents profiting more in commissions by hard-selling whole life insurance plans as premiums for those plans are higher than pure protection plans (or term insurance), which may not be in their customers' best interest.

"Simple term life insurance is sometimes all a person needs to protect against risk," said Mr Menon in his speech last week.

This issue has been oversimplified, said Mr Ng.

He said that customers have different preferences, with some opting for whole life insurance as they prefer a product with a savings element that offers a cash value, unlike term insurance that does not.

"You cannot tell them 'no, you should not have it'. The important thing is to make them see that there is (a term insurance product and a whole life insurance product) . . . and give them this option - which is what we have trained our agents to do."

Despite AIA's in-house estimations placing protection gap figures in Asia at US$20 trillion, there is still an underlying underinsurance problem plaguing the average Singaporean as the general sentiment has leaned towards investment products, said Mr Ng.

"Our belief is that it should be at least 5-10 times annual income," he added. "We did some studies and we found that only two out of 10 Singaporeans are adequately protected. Our challenge is that, sometimes, customers want returns and are not placing enough emphasis on the protection bit."

Consequently, AIA has embarked on its Premier Agency strategy to develop and train more agents to bridge this gap by encouraging clients to first address their protection needs wholly before selecting investment-type products.

On the topic of expansion, while Mr Ng reiterated AIA Group CEO Mark Tucker's intention to focus on organic growth, he declined to comment on reports surrounding AIA's rumoured interest to acquire ING Groep NV's Asian insurance unit in a deal valued at over US$6 billion.

However, he did not rule out the opportunity for potential M&A transactions if the right deal comes along. Said Mr Ng: "All I can say is if there is something that is financially sensible which gives returns to our shareholders . . . we would look at it."

Meanwhile, AIA Group's spate of hiring former Prudential staff for its management ranks has incited speculation that it is part of a deliberate strategy to poach its rival's top talents. Mr Ng, a former Prudential employee himself, was quick to dispel this allegation.

"In some places, it happens to be true because it so happens that Mark and I came from there and we do know some of these people," he said. "I can tell you a lot of people want to join us but they do not meet the standard, and they could be from Prudential. The main thing is that we are in a good position where we are able to attract people."

This article was first published in The Business Times.

That Singaporean is generally under-insured has a lot to do with high premiums of whole life insurance with low protection and too many investment policies. With the premiums paid for whole life insurance, it can easily provide adequate protection if the premiums are used to buy term life insurance.

personal opinion only. I cancelled my whole life insurance, bought new term life insurance, now covered many times more than original whole life insurance covered, but much cheaper.

Yes, if u want insurance, term is the way to go..

Investment? DO IT URSELF!!

The Straits Times
Apr 18, 2012
Fee-based insurance system 'has risks'
Great Eastern CEO warns of pitfalls in proposed model that does away with commissions

By Magdalen Ng

Moving the insurance industry from commission payments to fee-based remuneration brings risks, warned Great Eastern Holdings chief executive Chris Wei.

The proposed system would involve people paying fees to advisers, instead of what can be hefty and at times hidden commissions on the products they buy.

But Mr Wei told The Straits Times: 'I have trouble with the concept that the lower-income households will be willing to pay for advice before they buy a product.'

He added that if the Government wants to reduce the insurance gap, instead of taking a broad-brush approach, Great Eastern Holdings would advocate tailored solutions for different segments.

A Life Insurance Association study found the average Singaporean to be under-insured by more than 65 per cent. This figure is based on a recommended coverage of approximately 11 times a person's annual income.

The average Singaporean has cover of about $165,000, when $495,000 would be needed to maintain his or her living standards.

The Financial Advisory Industry Review, which was appointed by the Monetary Authority of Singapore (MAS), is aiming to raise the quality of advice given by insurers while looking into introducing the cheaper fee-based system used in Britain and Australia.

Mr Wei said that an independent financial adviser (IFA) model tends to go hand in hand with fee-based compensation.

But he noted that Australia, which has a dominant presence of IFAs instead of tied agents, is one of the most under-insured markets in the developed world.

He also questioned what would happen to the industry, and if people would still consider selling insurance as a career under a low-cost model.

Great Eastern is already seeing reduced interest from job-seekers, but Mr Wei added that the decline has not been dramatic.

'It is hard to articulate without knowing the details (of the changes) but I think naturally, there would be a significant impact (on Great Eastern's agency force) and I'm not going to pretend that I'm not concerned about that.

'Over the years, we have invested a significant amount on training and upgrading our agency force. To me, the agency model is definitely the core distribution channel for Great Eastern.

'It is an important channel and we take great pride in it. We feel that every role in our agency structure plays an important part in enhancing the professionalism of our agents.'

More than 80 per cent of the new agents recruited by Great Eastern last year had tertiary education and the firm continues to provide training and development for all its distribution partners.

Great Eastern has also been upgrading its training modules.

Mr Wei added that Great Eastern is 'very supportive' of the MAS review and will respond accordingly to serve the Singapore market.

He added that he very much 'embraces the concept of enhancing transparency', because the insurance industry is one that hinges on trust.

'We sell a promise, a promise to take care of you when something happens. It is a bit of an intangible product, so anything that enhances the consumer's trust in the industry, his adviser and the company can only help the industry,' he said.

songyuan@sph.com.sg