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Am I paying too much for insurance?

Before we go into cents and dollars, let us explore a little more that makes the term “insurance” meaningful.

Pure Risks. Huh?

Risks are choices; we can choose.

If you choose to go into investment, you take up investment risks. The graph above illustrates such. Non-investment related risks exist as well. If you choose to ride a motorbike, you take up accident risks. If you choose to gamble, you take up losing risks. The list goes on.

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What if we are left with no choice?

However, Pure Risks are what we never choose to undertake; yet they are ever present in our lives.

Let’s take premature death for example. Usually, death comes untimely. How often the obituary page states that a deceased passed away at the right time? When premature death occurs, it may not be just physical death but also financial death. Some debts and loans don’t die off, so will you want your love ones be burdened? Dreams of providing education funding and better lives for your loves ones may die off as well.

The impact of financial death can be potentially more serious than physical death itself. If one knows the timing and manner of his or her death, then contingency planning becomes so much easier. But most of us cannot foretell when and how death will strike.

When living is worse off.

What if we don’t die?

Certainly not immortality, but other forms of Pure Risks like disability, critical illness, accidents, hospitalization etc.

Should your body condition not permit you to perform as required from your profession, you lose your employment value and in turn your ability to generate income. Dreams of a bigger house and holiday destinations might need to be shelved, simply because bills and expenses are still ongoing and they need to be taken care of at least at survival level.

If you are hit with a major hospital bill, will your Medisave funds be sufficient? Will it wipe out your hard earned savings? Not being in the best of health, yet heavily in debt.

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The financial death in such instances sounds so much worse off than physical death. To some, it may be a living hell.

“在新加波，可以死，但不可以病”

(In Singapore, it’s better off dying rather than being ill)

Doesn’t this phrase sound eerily familiar?

We know very well cancer is very real. We too know that cancer is the top killer disease. Therefore we accept the existence of it and try to avoid it by eating wisely, exercising etc. But living a healthy life can only reduce the risk, not avoid it altogether.

Transfer it.

Since Pure Risks cannot be avoided, then the only logical way out is to transfer them. This is where insurance company comes into the picture.

The primary function is to prevent financial death in event of Pure Risks events. The beauty of insurance is a promise of a pen and paper that guarantees you a certain sum of money in the event of unforeseen circumstances. No other instruments in this world can offer you such a promise.

An insurance policy cannot eliminate the grief and sadness when one passes on, but leaving behind a legacy rather than debts sure sounds more ideal.

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Buy insurance. Don’t be sold insurance.

Insurance has evolved with time. While the primary function of protection still remains the same, it can be a wonderful tool for accumulation purpose as well. It is therefore increasingly important to have knowledge about insurance before placing your signature on the dotted line.

Generally, besides Term policies, others like Whole Life, Endowment and Investment-link polices will generate returns on your premium paid. No returns on premium paid usually means the cost of a Term policy is much lower compared to the rest. This led to some people saying;

“Buy term, invest the rest.”

How true this statement is depends on individuals’ perspective.

At the end of the day, you’ll want to say, “I bought insurance” rather than “I’ve been sold insurance’. Be proud of what you acquire since it’s for your own good as that of your love ones as well.

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Example of Term insurance vs Whole Life insurance

A 20 year old individual could be paying $16 a month for a term plan of $100,000 sum assured, opposed to another individual of the same age paying $100 a month for a whole life plan with the same sum assured. Premium is an astounding 525% difference! It’s a $1,008 difference on annual basis. Multiply it across 40 years; it’s $40,320 worth of savings opting for a term policy!

However, this is only true to a certain extent. If nothing happens to both individuals by the age of 60, the former paid a total of $7,680 for premiums. Since the premium doesn’t generate returns, what he has paid will be written off as expenses. For the latter, he has paid $48,000, and could potentially accumulate about $94,118 (at 3% interest per annum) at the age of 60. That’s almost double of what he has paid for premiums, or near 200% returns generated!

But in another scenario whereby both individual passes on prior to age of 60, do they still get the same amount of $100,000? Chances are, no. Simply because a term policy pays out the exact sum assured, which is guaranteed, while a whole life policy pays out the guaranteed sum assured plus the accumulated cash value.

Another point to note; the former loses the sum assured since a term policy has an expiry date, but the latter has a choice of keeping his policy or cashing in for his retirement usage.

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20 year old A 20 year old B Premium per

annum $192 $1200

Sum assured $100,000 $100,000 Premium paid @

age 60 $7,680 $48,000

Cash value @ age 60

N.A. $194,118

Coverage expiry Age 60 Age 99

Yet, the above-mentioned example cannot determine which individual is better off or which policy is better; term or whole life?

A good portfolio has essentially 2 basic functions of protection and accumulation. The essence of it has to involve factual information, needs, priorities, goals and objectives of an individual and then tailored made by the insurance agent to fit the client.

No agent will ever claim to be incompetent. Choose wisely.

So now, you are ready to meet an insurance agent. But what should you look out for?

A good insurance agent is not only knowledgeable about the various products available and their limitations, but also that of taxation, CPF regulations, economy, politics etc. All these have an impact on your finances.

Most importantly, the agent should be there to help you in filing claims. In event of claims, it is often due to an unfortunate incident. The agent must be proficient enough to assist with the claiming in order to ease the transition and relief inconvenience for the client. Any missing qualities would just make the agent another regular salesman chasing

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for sales figures to qualify for awards, possibly at your expense.

Have you not encountered them at bus interchanges, MRT stations, or even while queuing up in post office and banks? Tricks like “surveys” to get your contact number, quick and unethical sales, no after sales service may occur.

Positive qualities distinguish an insurance agent as a financial consultant over a salesperson. Who would you prefer? One who moves with you or one who moves despite you? When you buy a product, would you opt for warranty or free gift?

Salesman vs Consultant.

Let’s look at another real life event. John, 23, met an insurance agent Joanna at a roadshow in Bugis Junction. After a discussion of merely 15 minutes, Joanna finds out from John that he has a monthly surplus of $300 every month. She then proposes him an endowment plan with cashback benefits priced at $301.30 monthly, with a sum assured of $30,000. John walks away happily, thinking he got a good deal. Joanna lauds at another case closed and moves on to the next target. But did John really get a good idea? Or Joanna benefited more from a quick sale?

Benson, 23 met an insurance agent Roy through referral from his friend. During the meet up, Roy enquires about Benson’s financial goals and objectives, goes through his balance sheet and income statement arrives at a surplus of $300 every month. The whole discussion took about 45 minutes. Roy fixes up another meeting with Benson 3 days later without any sales done. Back at his office, Roy analyses the information gathered from Benson and comes up with several options for Benson to consider, taking into

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consideration of what Benson’s needs. 3 days later, they meet up again and Roy goes through the several options tailored to meet Benson’s needs. Finally, Benson signs for 4 policies; an investment-linked plan, and endowment plan, and hospitalization cover amounting up to $287.92 a month. Benson walks away happily knowing his needs are being taken care off.

John Benson Age 23 23

Met agent through

Roadshow Referral

Budget $300 monthly $300 monthly Time spent

before signing 15 minutes 45 minutes for 1st

session, another 45 minutes for

2nd session Sum Assured $30,000 $120,000

Number of policies

1 4

Suitability of recommendation

10%, maybe lower

90%, probably higher

Agent and policy; both matters.

Generally, the question of whether if you are paying too much for insurance not only lies on the type of insurance polices, but also the quality of the consultant whom can value add financial knowledge to you. In case you are wondering, the above stated examples are real life cases I’ve dealt with. My set of belief forbids me from engaging in any forms of unethical sales.

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“Independent Financial Advisers”; just but a nicer name for “Brokers”.

Be mindful of a certain group of insurance agents whom call themselves independent financial advisors.

Technically, the term ‘independent financial advisor is generally misused in Singapore. In other countries such advisors earn based on fee charges on financial planning, not through commissions from policies. Simply, they are just brokers whom can access to multiple companies’ policies. You can hear them almost speaking the same advertisement line.

“I can sell insurance polices from all companies in Singapore.”

This is untrue.

They cannot sell anything from the number one insurance company in Singapore starting with the letter P. It has never been the tradition of company P to do so and it is set to be this way, if one can know better the vision and mission of company P.

The brokers either avoid talking about products from company P altogether, or run down products from company P. Now that deviates away from objectivity.

“Through me, I can give you the best policies.”

Subjective. Let’s take it that one company has about 30 products on the average. So there will be 180 of them in 6 or so companies.

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Does it mean that the broker knows all 180 policies inside out that her or she will be able to really give you the best policies? Will the broker be more mindful of your needs and budget or his or her own commission? Here lies the issue of integrity over competency.

Simply saying, such brokers cannot be 100% objective for your good due to non-access to each and every insurance company in Singapore and they are still paid based on policy commission. Again, choose your agent wisely.

Buy at the bank? Potentially a bad idea

Many of my own clients are victims of bank insurance agents. Like many others, they walk into the bank to open up a new savings account. Somehow, someone tells them an alternative savings plan that gives higher interest rate than traditional deposits, and proceeds to sign on the dotted line. A week later, a big envelope from an insurance company is sent to their mailbox.

“I bought an insurance policy? Like when?”

This is an unfortunate case of mis-selling. The agent probably deliberately twisted some words to make it sound like a good deal, omitting the words like “insurance” and “liquidity” to the sales speech sound fantastic. Therefore the client gets misled into getting something not to his needs.

Early termination equates to huge losses or even total loss. Living with it means he has to continue the paying

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throughout the term of payment. It might be too long stretching pass retirement age.

See why I said it is a bad idea now?

Economy is like technology; it moves with or without you.

Especially in a fast pace economy in Singapore, it is all around us. More housing being built, more industrial areas developing, MRT lines covering more estates, increase in number of millionaires. All these are sure signs of economy moving forward.

A prudent financial decision will allow you to ride on the waves. On the contrary, a poor financial decision will come haunting you in time to come.

What’s next?

If you think that you might be overpaying your premiums, or be keen to know what other agents don’t want you to know, I will be most willing to offer you a non-obligatory session to answer your queries.

You will benefit through understanding better how your current policies work for you and possibly what can be done to enhance your current portfolio.

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Book your free session now!

http://www.vcita.com/v/ezyinsurance4u/online_scheduling?staff_id=b2a7b0d1d09fd938

During this FREE 1 hour session, you will be able to

- Understand how much you need to be covered (don’t over do or under do this part)

- Find out if you are currently enrolled in plans that don’t’ serve you well (or even agents that don’t)

- Find out how insurance can be made low cost or even free! (most agents don’t know about this themselves!)

- Understand how an agent can be as proficient as your personal banker (maybe even better!)