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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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Thursday 14th of March 2013

Hi Drizzt,

Let's face it this way: While you are a consumer who is concerned with both your protection and your money, a higher chance would be your itchy, biased eyes focusing at the potential chance to invest monthly ($200) in a ILP, and a chance to gain an upside.

Which other investment vehicle can give you such a chance with a low capital at $200?

As consumers, sometimes we can only blame ourselves for being greedy, because we like what we hear, and we can't help it. How many of us are willing to commit into a simple health insurance and critical illness policy without needing to think about potential returns?

Not many, until you learn it the hard way. Like me. I was striken with Stage 2 Cancer at age 62. Had I bought a term plan, I would probably had the incentive to give up a term plan because there is no returns.

I am very thankful I'm covered for life, because at 62, I was expecting to retire comfortably, but it looks like I will be more thankful now if I still had the ability to work, instead of having exhaust my savings and relying on my son.


Saturday 16th of March 2013

Hi Sophia,thanks for sharing your side of the story.

I think it is more valid to say that having a good planner who is unbiased and watches your concerns are important.

Many times, they don't do the hand holding. Think about this. If you are about to give up on your plan, or to swtich to a higher return one, 2 kinds of agents comes along to give you an annual review.

the first one is a commission based advisor, who had to spend time talking to you and potentially not having to earn anything. sure he can be altruistic but chances are his recommendation will be biased to sell you stuff.

the second one is a fee based one where you are actually paying him X amt to do a 2 yearly review. he can reign you in to keep your current term plan and look for an alternative savings plan or provide you saving method WITHOUT him selling you anything, because he already gets paid for his time.

Alex Khoo

Friday 30th of March 2012

Hi Drizzt,

I'm glad to chance upon your blog. It has pretty good contents and opinions. I was commenting because i felt that there are certain areas i have to clarify. But keep up the great work!

Anyways, I have been a qualifier of the MDRT for a few times. You are right to say that term products are not the products that got me there. It does supplement though. However, my belief is that as long as an agent has more people to see than more time to loiter around, he will not have any problems recommending term insurance.

My first few years were spent selling life insurance. However these days, i do alot of term insurnace to supplement their existing life insurance. For new clients, I would ideally do a mix straight away.

MDRT is a wonderful organiztion. It teaches us about integrity and how to be a whole person. Its not just about sales. It is difficult for explain MDRT as it is about the experience of attending the yearly convention.

I have over the years advice my clients to save up in anoher bank account to build up liquidity. And I adviced them that it is best if the alternate bank account do not have internet transfer and atm cards. Well the thing is when you revisit them, the results are mixed (To describe it mildly).

You know every young man is earning two paychecks. One for now and one for the old man he will become. Our role as an aagent is to ensure the young man do not spend the old man's paycheck now. So as long as it is not spent, it is ok to have some in the banks, some in endowment, in stocks or in property etc. But that is in the ideal world. People will still wipe out their yearly savings on cars, vacations, renovations or luxuries. Poor old man!

I never advice young agents to sell endowment. In fact i frown upon such practice. I really get quite upset when i see a portfolio with lots of endowment without any life or term.

To a certain extent, it is true that the distribution costs are high. However It should not be compared to MLM. I have serviced some of my clients coming to ten years and also did some claims. The commissions that we take is also a committment to serve our clients for the many years to come and is not one off like most sales. And I can share wth you the worries and the anxiety that we face during claims is really quite intense. We do not have multi tier agency. 3 tier is the max. I spent lots of time with every single new agent that comes into my team. Whatever overrides that I get i feel is reasonable as I probably use to earn more as an MDRT producer.

Some insurance company does provide online purchases to cutoff the middleman. I'm totally fine with the arrangement. Its just that the average Singaporean needs $500k coverage as oppose to the average $165k coverage they have. It won't be easy to get them to buy insurnace online as most people still feel that insurance is low priority and is viewed as a nice to have. Not many people will take personal responsibility to do research and implement plans like yourself.

I do agree with you however that we can lower some commissions just to make it that bit better for clients. But as it is, Singaporeans still need good agents to not just advice them, but also to motivate to implement their plans eye ball to eye ball!

Alex Khoo

Wednesday 28th of March 2012

Dear Drizzt, I'm an insurance agent and am proud to be one. The debate of term vs whole life (WL) and or Investment Linked Products(ILP) has been ongoing for a long time. I have nothing against term, WL or ILP. Just wanted to mention that all these products have limitations and my suggestion is that we have a mix. Term - Most terms expire when we need them the most! Most people will claim that they buy term and invest the rest. I would say they buy term and blow the rest in holidays. WL - Whole life are expensive compared to term and bonuses are non guaranteed. ILP - Generally less expensive when you are young, but insurance charges tend to grow exponentially as you grow older. I normally have my clients take up about $200k to $300k of WL and $1mil term till 60. Varies depending on needs, wants and budget of the client. Endowments generally give modest returns. I still feel that they are pretty good as they force us to continue accumulation over the years and it is not so liquid. Just like CPF, most Singaporeans manage to accumulate more in CPF compared to savings as it is mandatory and we can't withdraw them till retirement. Having said that, I'm sad to add that I have come across many prospects' portfolio that have endowment but no WL or term. I guess endowments are so much easier to market for an inexperience insurance pratitioner. Financial planning is generally about self discipline and most of us do not have it. Hence thats where endowments come in handy. Just make sure that endowments don't take up too much a percentage of your accumulation portfolio and you should be fine.


Friday 30th of March 2012

hi Alex, thanks for viisting and sharing your thoughts. these products are not wrong for objectives. my take is that the industry as a whole are such a broken structure that agents only sell things that help them put food on the table, buy their sports car and put them on the million dollar round table.

selling a 200k policy nets an agent 7k in commission versus 1k++ for a term. For ilps it invites them to tweak, sell and buy new ilps or funds. Now is that beneficial to the consumer? wouldn't it be better to blow on a holiday?

to force saving do a transfer to another bank account. as an agent that want to benefit the person, shouldn't you be teaching him how to change a habit if the returns are modest? the fact is why get new agents to sell endowments as a first cut for newbie agents? perhaps they offer the best commission to let the agents see there is hope in this line versus something that people on the street really want.

i may come across as bias, but i have friends and colleagues who are even worse when they see agents as no different from people selling MLM. essentially insurance has an MLM structure to it as well.

the cost is the biggest issue. the best for this is for insurance to be an utility offer at an online website with a low fee.


Thursday 19th of January 2012

Hi Drizzt,

I'm curious on the things your good friend told you about not to buy ILPs and endowments? Could you share with us more about the down side of ILPs in particular, as I got an ILP a year ago which I spend approximately $3k per year with protection of $300k against Death, TPD, TI and critical illnesses. I bought it because when the agent compared their Term against their ILP. they show that after 30 years, their term ended with no returns if I do not claim. Whereas for the ILP, I would have about $110k to $240k after spending $90k for the 30 years if i don't claim. This was the main pull factor that I took up their ILP rather than their term plan.

Please enlighten me, I hope I didn't make the wrong choice that time.


Wednesday 11th of April 2012

hi Thinker, the illustration your insurance agent provided is the best case scenario.

do note that the first yera 3k premium almost all would have gone into the coffers of the agent. an ilp is good sell to them because they can always tell you that in this climate you better switch to this 2 underlying unit trusts to better take advantage of the current scenario. in that case when u switch out and buy two more they end up earning more commission.

in the case of ilps much of the return will depend on the growth of the underlying unit trust. i spoke to my AIA agent and many end up cancelling their ilps because in the bear alot cannot take the losses.

it is true that term earns nothing, but that is because we are treating it as an expense. I may be paying 1.8k per annum on term but at the end of 30 years i gurantee that u can save the difference 1200. which amounts to 36,000.

i am not sure how they derive that figure.the rate of return is absolutely astounding. i am against term because even if u want u should go for 2 exchange traded funds (ETF) or 2 unit trust, why buy something that the underlying is essentially unit trusts and pay wrap around fees to them?

lastly i am sorry for the late reply.

Jomel Ng

Friday 13th of January 2012

Hi Drizzt

I hope you do not stereotype against all insurance agents. When some of us plan for your finances, we keep your budget in mind and try to propose products to you in view of your budget. People who are living day to day or are in debts should not buy insurance. The least and most important people should buy is a medical expenses insurance (via CPF) which many people do not have!! When you are in a better cash flow position, then you think about more sophisticated insurance like ILP or endowment or whole life.


Saturday 14th of January 2012

i'm sorry i would have to disagree here and i think alot would. even if you are in a good state of finance you should stay far away from iLPs. as to whether i am stereotyping them or not, i am probably generalizing them. other than the bloggers insurance agent i came across i am really sad that non of them i met end up doing well.

when you have good friends as insurance advisor telling you not to buy ILPs and endowments for your own good while they had no choice but to sell them to make a living that in itself goes to show how respectable these plans are.

Jomel, i thank you for posting here but i have to remove your handphone number. I am not sure if its a subtle solicitation but that move is a red flag similar to going to forums private messaging people to forming client base.

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