Term Life Insurance to solve the problem of Singaporeans Underinsured? The problem is the Agents and the Insurer! | Investment Moats Skip to Content

Term Life Insurance to solve the problem of Singaporeans Underinsured? The problem is the Agents and the Insurer!

This week’s The Edge Magazine Personal Wealth discusses that in a 2011 AIA Singapore Nationwide Protection Survey, it highlighted that only one in 10 Singaporeans is deemed to be adequately insured while nearly one in 4 perceived insurance is too costly.

The article interviewed Christopher Tan from Providend, who is a proponent of term insurance. (For a detail understanding of whole life versus term insurance read here.)

Agents have an incentive to sell costly products but not cheap and viable ones

I tend to agree with that. I talked to my friends and this is my conclusion.

I am only adequately insured to the maximum amount I can spared for my insurance agents.

A lot of the folks on the streets have limited understanding on insurance and financial planning. As long as you present a tight story with few loopholes, chances are their limited understanding will work towards the agent and against the prospective clients.

They get taken advantage of when the only products presented are whole life, limited whole life, endowment and ILPs. Only when a client that heard of term insurance highlights this, then the insurance agent tells the client why term insurance is bad.

The insurance agent does 2 things here

  1. A good viable alternative was not presented against what the agent tries to sell. Those likely earn a much higher commission.
  2. The agent sells the bad points of a good product and does not sell why it is good about it, which is affordability, effective and supplementation.

How can you buy something cheap and useful when it isn’t presenting to you in the first place?

How can an agent sit on a Million Dollar Round Table just by selling cheap budget policies?

We are underinsured because cost of living is going up, but also that the insurance advisory system’s main objective is geared towards filling in insurance agent’s wallet and secondly to make sure the client’s needs are fulfilled.

Limited budget yet cheap alternatives are not illustrated well to clients

So in the article they have a table showing

  • AXA Term Protector with TPD benefit for 30 years $500k coverage costing $980 annually, $81 monthly.
  • Manulife ManuTerm with TPD benefit for 30 years $500k coverage costing $984 annually, $82 monthly.
  • Aviva My Protector with TPD benefit for 30 years $500k coverage costing $1000 annually, $83 monthly.

Now that’s not a good comparison since most limited whole life or whole life bundles with critical illness coverage. Taking my 30 year Asia Life Term Insurance bought while I was 28 years old, a 100k Death, TPD and Critical Illness coverage cost me $50 per month.

Extrapolation of premium doesn’t always work but here if we multiply by 5, a monthly coverage for 500k works out to $250 per month, $3000 per year.

I have a 50k Asia Life Limited whole life that I will pay for 20 years. This cost me $95.00 which is roughly double that of the 100k term life insurance.

Multiply it by 10 and the monthly premiums is $950, $11,400 annually.

Few things here. We are comparing apples to oranges here, but if we talk about fulfilling the objective or providing adequate coverage, the client have to fork out $3000 versus $11,400.

If your job is to make sure that people gain the best coverage with their limited budget the choice is simple. Cheap alternatives are seldom well illustrated to clients.

The president of LIA wants to help by selling Investment Linked Policies!

Here is probably the root of the problem. Even the top dog in insurance companies think that the solution are costly products!

Investment Linked Policies is a product that is a black box construct, not letting you see the inner workings, yet so many way to milk your money.

“As part of AIA Singapore’s key focus to help Singapore Families bridge their underinsurance gap, the AIA Family First series of plans was launched in July 2011 to provide customers with the flexibility of choosing a plan to focus on protection, investment or a tailored combination of both, depending on the individual needs.” says Tan Hak Leh, senior vice-president and CEO of AIA Singapore who is also president of LIA

So the solution to the problem is to sell the family a black box that we do not know the cost, is able to enable the insurance company to milk more recurring costs over products that are easily understood?

If the client have only $5000, selling them a complex product that does many things will still leave them underinsured.

I wonder why they cannot see the light of things.

Will you sell a product to your clients but at the same time dissuade your close friends from buying it?

I always like to finish this discussion that my friend brought it up to me.

He have numerous friends in the insurance advisory business and that they have dissuade him from buying these endowment products, investment linked products.

Now sometimes we need to make a living that’s why we do the things we do, but we always want to keep the loved ones and those we care about from harms way.

People familiar with the air-con industry who are selling air-con themselves fitted their home with Panasonics’ air-con. These are the people dealing with things in and out and they would be able to discern the good from the bullshit.

If insurance advisor is advising their closed ones not to buy such grey products then what does it say about them?

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