Dear Mr.Tan,
I had read some of your articles about insurance and would like to seek your advice.
It is sad to learn that the current practices by insurance companies and their agents are not as ethical as what they claim in their mission statement or business code of ethics. It is also too late for my wife to realize that her entire CPF savings (ordinary and special) is now suffering heavy loss after being misled by an insurance agent in November 2007.
All along, ordinary people like my wife took insurance agent as professional and able to give reliable and accurate information. However, such trust was shattered after she was misled to loss-making investment-link policies. The way that he pushed the high risk bank-stock-link funds before the stock crash to unaware customer as low-risk investment still upset me today.
Although we complained about the agent's misrepresentation in Feb 2008 and got him admitting his 'ignorance' of the stock market, our request to annul the policies was rejected without clear explanation. His unethical use of national annuity scheme to scare my wife into putting her entire CPF savings in the dubious policies was also unanswered.
We contacted FIDREC but pulled out halfway due to stress and forlorn hope because my wife had already signed the Know Your Client Financial Needs Analysis Form which binds her to everything.
I have some questions below and I wonder you could offer your opinions.
1) Can stock-link-fund-selling agent ignore stock market warnings such as US housing credit crisis, US recession, banks' losses, etc? Isn't he a professional in his industry?
Reply: It is difficult for the fund agent to know that the market will be so bad. If they know, nobody will be transacting in the market.
2) These funds follow STI intimately; can agent ignore STI's sliding from historical peak late Oct 2007 and sell the funds at highest prices? Isn't his financial advice guided by the "buy low sell high" principle? This goes against Income's claim that they care about client's interest and are social responsible.
Reply: It is difficult for the fund agent to know that the market will be so bad. If they know, nobody will be transacting in the market.
3) Is it ethical to use annuity scheme to scare and influence client's decision, instead of sound financial judgment?
Reply: The agent should not use the national annuity scheme to scare the investor into making stock market investments.
4) The business law governing fund selling seems to be flawed. We only realized now that the Financial Needs Analysis Form, done casually, is holding the policy holder solely responsible. Isn't this document a likely signed blank check which could be rigged by unscrupulous agents?
Reply: The financial needs analysis should have been done properly and not casually.
5) Isn't there a mechanism to prevent such suicide-like buying of funds when all the indicators point to a looming stock crash? Can such crash prophets by George Solos, Warren Buffett and Jim Rogers be totally ignored and risks as high as such not mentioned to clients during the selling presentation?
Reply: It is difficult to know if the market will go up or down, at any point of time. One can only know with the benefit of hindsight. Your wife has made a long term investment. You should hold the investment for many years. It is likely to recover.
I made a personal investment myself around that time, and my investment is showing a big loss now. So, I was not aware that the market can be so bad. But I have to wait for it to recover.
Thursday, September 4, 2008
Agent does not explain clearly
Many people read my blog regularly. When they meet me, they told me, "I like your blog. It helps me to understand the insurance policies that I have bought over the years. The agent did not explain the policy clearly to me".
Why are insurance companies continuing to design complicated insurance products that their agents are not able to explain to the customer?
Here is the secret. The agent does not want to tell you the truth. If they do, you will not buy the product, because it gives poor value to the consumer. The agent finds a way to make your buy the porduct, without really understanding it.
The regulator requires the agent to give a Benefit Illustration. It does not help, as the Benefit Illustration is confusing to the consumer (and even to an expert like me).
Why are insurance companies continuing to design complicated insurance products that their agents are not able to explain to the customer?
Here is the secret. The agent does not want to tell you the truth. If they do, you will not buy the product, because it gives poor value to the consumer. The agent finds a way to make your buy the porduct, without really understanding it.
The regulator requires the agent to give a Benefit Illustration. It does not help, as the Benefit Illustration is confusing to the consumer (and even to an expert like me).
Twisting of existing life policies
Dear Mr Tan,
I am a young, single working adult. I've met up with two financial planners. One is from a reputatble affliated insurance company (X) and another is a independent financial advisor (Y).
X recommends me to buy a limited whole life plan (coverage of 100K) and a private hospitalisation plan and some other riders such asdiability income. The total premiums payable per month is around 250. Previously I've already bought a ILP ffrom X (100k coverage) and I have another 50K coverage from a whole life plan that my parents bought for me since young ($50 per month).
Y recommends me to cancel the 50K whole life plan that my parents bought for me and buy a term plan including HnS for only 100 (coverage of 250k), and invest the rest.
I understand this is in line with your "buy term, and invest the rest" strategy. But do I have to cancel the plan that my parents have been paying since 13 years ago?
And what is your opinion on limited whole life plan?
REPLY
You should continue your existing policies. Do not terminate them to buy the recommended new policy.
The agents X and Y are trying to "twist" your policy. Read this blog to understand what is "twisting": http://tankinlian.blogspot.com/search?q=twisting
If you wish to "but term and invest the difference", you should choose a 20 or 30 year term and not term to 100 years - which is like whole life insurance. The agent is cunning, and is trying to make a sale at your expense.
Avoid the whole life limited payment plan. It is expensive and give poor values. Do not cancel any existing policy to buy a new policy with high charges.
I am a young, single working adult. I've met up with two financial planners. One is from a reputatble affliated insurance company (X) and another is a independent financial advisor (Y).
X recommends me to buy a limited whole life plan (coverage of 100K) and a private hospitalisation plan and some other riders such asdiability income. The total premiums payable per month is around 250. Previously I've already bought a ILP ffrom X (100k coverage) and I have another 50K coverage from a whole life plan that my parents bought for me since young ($50 per month).
Y recommends me to cancel the 50K whole life plan that my parents bought for me and buy a term plan including HnS for only 100 (coverage of 250k), and invest the rest.
I understand this is in line with your "buy term, and invest the rest" strategy. But do I have to cancel the plan that my parents have been paying since 13 years ago?
And what is your opinion on limited whole life plan?
REPLY
You should continue your existing policies. Do not terminate them to buy the recommended new policy.
The agents X and Y are trying to "twist" your policy. Read this blog to understand what is "twisting": http://tankinlian.blogspot.com/search?q=twisting
If you wish to "but term and invest the difference", you should choose a 20 or 30 year term and not term to 100 years - which is like whole life insurance. The agent is cunning, and is trying to make a sale at your expense.
Avoid the whole life limited payment plan. It is expensive and give poor values. Do not cancel any existing policy to buy a new policy with high charges.
Land Banking - a scam?
Edited from an article in: http://www.guardian.co.uk/money/2008/aug/23/scamsandfraud.consumeraffairs1 Lesson:
Land banking is listed as a scam in this article.
Land banking
Here you are persuaded to pay a large sum of money for a tenth of an acre in a field - on the promise the land will soon receive planning permission and soar in value. So far, no land banking site has ever gained the building go-ahead. Most land sold in this way is green belt or zoned for agricultural use only.
But land bankers seize on every government statement about the need for more homes to stress that this means that it is certain that the site they are selling will soon be covered in houses - like almost all scams, this relies on an element of truth.
Land banking is listed as a scam in this article.
Land banking
Here you are persuaded to pay a large sum of money for a tenth of an acre in a field - on the promise the land will soon receive planning permission and soar in value. So far, no land banking site has ever gained the building go-ahead. Most land sold in this way is green belt or zoned for agricultural use only.
But land bankers seize on every government statement about the need for more homes to stress that this means that it is certain that the site they are selling will soon be covered in houses - like almost all scams, this relies on an element of truth.
Continue an existing whole life policy
Hi Mr Tan,
I've been reading your website with interest recently, and I noticed that you do not believe in the need for life insurance after the age of 65. I understand your point of view that as the kids have probably grown up already and you are retired with your nest egg funds and no need for the coverage.
However, I have the following view. If I have already saved up enough money for my retirement without the need to surrender my life plan which I started at a young age (thus high coverage and cash value), wouldn't you think it would be better for the family to have that whole sum? I'm assuming life plans cover death up to age 99.
Example, I buy a whole life plan since I'm 21, with death coverage of $200,000. Upon age 65, cash value may be another $200,000. If I do not need the money, I could just leave it there, paying my insurance charges, and assuming I die age 70, my family will have sum assured $200,000 + cash value $200,000, therefore = $400,000 instead of me terminating the policy at age 65, withdraw the money and place in fixed deposits for the next 5 years until iIpass away at age 70?
Please correct me if I'm wrong in any of the assumptions I've made, but what I'm trying to say is that, leaving the money for my next generation through insurance may be another way to look at it instead of the simplistic approach of terminating all my policies once I reach age 65. It should all depends on individuals.
Thanks for your time, and hope to hear your point of view.
REPLY
Please read this blog and watch the video by Suzy Orman
http://tankinlian.blogspot.com/2008/08/susie-orman-on-life-insurance.html
As you have already taken a whole life policy, you can continue with it and leave the proceeds to your children, especially if you have sufficient money to meet your own needs. For young people who are not so well off, it is better to buy term insurance for 20 to 30 years, and invest their savings in a low cost investment fund.
Read this FAQ about continuing with an existing life policy:
http://www.tankinlian.com/faq/exist.html
I've been reading your website with interest recently, and I noticed that you do not believe in the need for life insurance after the age of 65. I understand your point of view that as the kids have probably grown up already and you are retired with your nest egg funds and no need for the coverage.
However, I have the following view. If I have already saved up enough money for my retirement without the need to surrender my life plan which I started at a young age (thus high coverage and cash value), wouldn't you think it would be better for the family to have that whole sum? I'm assuming life plans cover death up to age 99.
Example, I buy a whole life plan since I'm 21, with death coverage of $200,000. Upon age 65, cash value may be another $200,000. If I do not need the money, I could just leave it there, paying my insurance charges, and assuming I die age 70, my family will have sum assured $200,000 + cash value $200,000, therefore = $400,000 instead of me terminating the policy at age 65, withdraw the money and place in fixed deposits for the next 5 years until iIpass away at age 70?
Please correct me if I'm wrong in any of the assumptions I've made, but what I'm trying to say is that, leaving the money for my next generation through insurance may be another way to look at it instead of the simplistic approach of terminating all my policies once I reach age 65. It should all depends on individuals.
Thanks for your time, and hope to hear your point of view.
REPLY
Please read this blog and watch the video by Suzy Orman
http://tankinlian.blogspot.com/2008/08/susie-orman-on-life-insurance.html
As you have already taken a whole life policy, you can continue with it and leave the proceeds to your children, especially if you have sufficient money to meet your own needs. For young people who are not so well off, it is better to buy term insurance for 20 to 30 years, and invest their savings in a low cost investment fund.
Read this FAQ about continuing with an existing life policy:
http://www.tankinlian.com/faq/exist.html
Million Dollar Round Table (MDRT)
Dear Mr. Tan,
I was previously an insurance agent and a salaried agency supervisor with two different insurance companies. From my experience, I have learned to be less than enthusiastic about the so-called prestige of the MDRT (Million Dollar Round Table). In fact, I might even have been sceptical.
The MDRT measures an insurance agent by the first year commission earned on new policies sold. It equates equates more commission earned to being more successful and prestigious. As a sales motivation, , it drives the agents to earn higher incomes. However, it may also tempt many agents into dubious practices in pursuit of qualification for membership.
I feel that to the ultimate consumer, the insurance client, buying a policy from an agent who makes $30,000 p.a. is no different from buying from an agent who makes $300,000 p.a., as long as it's a suitable policy. Just a suggestion. I hope that you may like comment on the MDRT in your blog.
REPLY
You have already made the point well. I have no further comments.
I was previously an insurance agent and a salaried agency supervisor with two different insurance companies. From my experience, I have learned to be less than enthusiastic about the so-called prestige of the MDRT (Million Dollar Round Table). In fact, I might even have been sceptical.
The MDRT measures an insurance agent by the first year commission earned on new policies sold. It equates equates more commission earned to being more successful and prestigious. As a sales motivation, , it drives the agents to earn higher incomes. However, it may also tempt many agents into dubious practices in pursuit of qualification for membership.
I feel that to the ultimate consumer, the insurance client, buying a policy from an agent who makes $30,000 p.a. is no different from buying from an agent who makes $300,000 p.a., as long as it's a suitable policy. Just a suggestion. I hope that you may like comment on the MDRT in your blog.
REPLY
You have already made the point well. I have no further comments.
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