| Robust sales in life insurance? Really? |
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| Written by Wilfred Ling | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Saturday, 07 August 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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According to the newly release statistics from Life Insurance Association HERE, the life insurance industry experienced a 28% increased in sales for the first half of 2010 as compared to the same period in 2009. However, in terms of claim payout only $210 million out of $1.85 billion were related to death, disability and critical illness. That means 89% of the money the insurers paid were UNRELATED to insurance. In terms of sales, the average sum assured per regular premium policy was $53,535 for the 2nd quarter of 2010. Interestingly 72% of the sales were conducted with partial or full fact find. Now, all these figures do not tally at all. First, the life insurance industry has already “move on” in doing things unrelated to insurance. The fact that 89% of the claims payouts were NOT related to insurance implies that the industry is doing very little insurance and a lot of other things like investments and savings. Second, despite majority of sales done using partial or full fact find, how come each regular premium policy sold is only on average $53,535 of sum assured? Remember that this is regular premium and NOT singe premium. (Single premium is usually related to investments and savings.) It does not take a genius to know that this amount isn’t going to last a family for more than a couple of years. With the escalation cost of standard of living, very soon this amount is going to only last 1 year! I know some people would argue that an individual will not buy just one policy. Logically speaking, if the client agrees to the recommendation after a full/partial fact find, they would be taking up the full sum assured recommended by purchasing one or at most two products from the representative. I suspect that the full/partial fact finds were either done mechanically or that many clients did not take up the recommended sum assured. Either way, there is nothing to celebrate about. Of concern to me are ILPs. Many people bought ILPs without knowing that it does not provide life time cover. They had thought it would last them forever as long as they pay the premium. Has anyone notice that if you generate an ILP quote for say a young person of age 30, you only get to see the illustration up to age 65 or so? Maybe it is because there is no space or maybe it was “designed” to be that way. Some of my clients who are in their 50s obtain the latest benefit illustrations when I requested them to do so. Since the illustration starts at age 50, the illustration will run until they are age 80 or 90. The illustrations clearly show that the policy may terminate at around 80+ because the death benefit and cash value is zero. Their reaction is predictable. Some of them would start shouting vulgarities. One of the fallacies about ILPs that advisers like to say is that the insurance charges are cheap when the insured is young. Therefore it is affordable to them. Factually this is correct, practically it is untrue. Why? What if I say that this bottle of drink only cost $0.01? Is it cheap? Yes, factually it is cheap because an equivalent mineral water cost $1. But what if I tell you that to get the bottle of drink at $0.01, you need to pay another $0.99 into a piggy bank which you cannot withdraw at the moment’s notice because up to XX% of the capital in piggy bank is taxable? Sounds complicated? That is how ILPs work. Very complicated. If you need $1 million for your surviving family (yes, this is a realistic value because of the need to support dependents and pay off mortgages), you will find that you cannot use an ILP because you are not allowed to minimise your investment component to zero. Remember that the insurer will not allow all your premiums to go to the insurance only – at least not initially. That is to say that you must pay $1 to get the $0.01 drink with the $0.99 deposited into a taxable piggy bank. As a result, the ILP premium to provide for $1 million of sum assured is ridiculously high. On the other hand, this can be done through a term insurance easily at rock bottom prices. It is a no wonder that Singaporeans continue to be underinsured. End of the day, who is to be blame? Consumers or advisers? To me, both parties are to blame. The buyer must do their own due diligent and research while the seller must be truthful and professional. The next time you ask for insurance advice, ask your insurance adviser exactly how much “real” insurance he or she has sold because the statistics show that 89% of the claim payouts were unrelated to insurance. Related FAQ on insurance HERE This article was also publish in CPF IMSavvy / IM$savvy: http://www.cpf.gov.sg/imsavvy/blog_post.asp?postid=570731262-128-7685205339
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board and it is used in many professions to mean the best advice that can be dispensed in attaining an objective, eg CPA, the medical and the legal . The UK former FSA used the term "best advice" Australia uses 'reasonable basis'.Our FAA uses 'reasonable basis" because the FPSB was consulted by MAS. I hope I have helped you understand why I was uncomfortable with Patrick Lim's definition of an IFA..if he didn't say that IFA dispensing reasonable basis recommendation is not an IFA I wouldn't pick on him. Read section 27 of the FAA.| < Prev | Next > |
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