Tuesday, October 27, 2009
Insurance for poly and university students
Dear Mr. Tan,
I read your view that it is not necessary for a poly student to buy insurance for saving. My friend, who is an agent, told me that I should save early and pay a lower premium. He said that if I do not save, I will spend away the money. Who should I listen to?
REPLY
As you are not working to earn a regular income, you should avoid making any commitment to make fixed saving in an insurance policy. You should save your money in a flexible saving account which can be withdrawn at any time, without any penalty, to meet emergency needs.
A life insurance policy is the worst type of saving plan for a student or any person with irregular income. Up to two years of your savings is taken away from you as "distribution cost". This is your earned earned savings, which you earn from part time work or from the allowance given by your parent. Why should you give it away to the insurance agent or company as distribution cost?
Many students find it a burden to continue the fixed commitment and give up their insurance policy, leading to the forfeiture of their savings.
It is wrong for the insurance agent to sell a fixed saving plan to a student who does not have a regular income. The agent is only thinking of earning the commission from the sale - without thinking about the financial burden that is being given to the student.
I read your view that it is not necessary for a poly student to buy insurance for saving. My friend, who is an agent, told me that I should save early and pay a lower premium. He said that if I do not save, I will spend away the money. Who should I listen to?
REPLY
As you are not working to earn a regular income, you should avoid making any commitment to make fixed saving in an insurance policy. You should save your money in a flexible saving account which can be withdrawn at any time, without any penalty, to meet emergency needs.
A life insurance policy is the worst type of saving plan for a student or any person with irregular income. Up to two years of your savings is taken away from you as "distribution cost". This is your earned earned savings, which you earn from part time work or from the allowance given by your parent. Why should you give it away to the insurance agent or company as distribution cost?
Many students find it a burden to continue the fixed commitment and give up their insurance policy, leading to the forfeiture of their savings.
It is wrong for the insurance agent to sell a fixed saving plan to a student who does not have a regular income. The agent is only thinking of earning the commission from the sale - without thinking about the financial burden that is being given to the student.
My comment applies to university undergraduates as well.
Tan Kin Lian
Tan Kin Lian
Cash back insurance policy
I wish to explain why a cash back insurance policy gives a poor yield to the consumer.
A cash back policy combined a basic policy with an annual refund feature. Let us take a hypothetical case. The basic policy is a whole life policy with an annual premium of $5,000 and a yield at the end of 25 years of 2% per annum. The cash back feature adds an additional premium of $1,000 and pays $950 a year from the 2nd year (i.e. no payment for the first year). The cash back feature reduces the yield to 1.8% per annum.
The agent tells the customer that he is getting a cash back every year (after the first year) and makes it look like a more attractive policy. But the agent does not explain that the yield has reduced or the effect of deduction has increased with the cash back feature.
The agent earns commission on the increased premium of $6,000 (including the premium paid for the cash back feature). If the distribution cost is 200%, the customer will be paying $12,000 in distribution cost, including the cost attributable to the cash back feature.
It does not make sense for the customer to pay a higher premium for the cash back feature and get back less than the increased premium. But the consumer does not know about this structure of the policy. The agent tells the consumer that this is an "innovative policy".
Tan Kin Lian
A cash back policy combined a basic policy with an annual refund feature. Let us take a hypothetical case. The basic policy is a whole life policy with an annual premium of $5,000 and a yield at the end of 25 years of 2% per annum. The cash back feature adds an additional premium of $1,000 and pays $950 a year from the 2nd year (i.e. no payment for the first year). The cash back feature reduces the yield to 1.8% per annum.
The agent tells the customer that he is getting a cash back every year (after the first year) and makes it look like a more attractive policy. But the agent does not explain that the yield has reduced or the effect of deduction has increased with the cash back feature.
The agent earns commission on the increased premium of $6,000 (including the premium paid for the cash back feature). If the distribution cost is 200%, the customer will be paying $12,000 in distribution cost, including the cost attributable to the cash back feature.
It does not make sense for the customer to pay a higher premium for the cash back feature and get back less than the increased premium. But the consumer does not know about this structure of the policy. The agent tells the consumer that this is an "innovative policy".
Tan Kin Lian
When cancer disappears
Some cancers do not need to be treated. They can stop growing and disappear, according to this article.
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