Martin Lee @ Sg
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Inadequacy of Insurance in Singapore

Last week, Mr Low Kwok Mun, Executive Director of Insurance Supervision of MAS spoke at the Life Protection Seminar organised by Life Insurance Association (LIA) and the Singapore Actuarial Society (SAS).

Among the points he bought up were:

  • The necessity of life insurance and the fact that most Singaporeans were under-insured.
  • This is due to a few reasons:
  1. Inertia of consumers or a false belief that misfortune would not befall them. This can result in hardship for their dependents should a misfortune really happen.
  2. Ignorance of insurance products or buying the wrong kind of products. Typically, most people buy plans with some form of savings element which are more costly. This usually results in insufficient coverage.
  3. The inadequacy of the current commission structure which might encourage the financial adviser to push the product that generates the most commission to him rather than what is needed by the consumer. A lot of products have commissions that are front loaded and thus does not give an incentive for the adviser to maintain a long-term relationship with the client.

Going forward, Mr Low hopes that LIA and the insurance companies will work together to ensure that their commission structures do not cause advisers to form a bias towards recommending specific products.

I think this will be a tough act as it will take a brave insurance company to make the first move of changing their tried and tested commission structure. Any change will probably have to come as a result of top down intervention. The speech by Mr Low is a strong hint though.

In the meantime, everyone should continue to educate themselves so that they are not taken for a ride by unethical insurance agents. A good place to start would be to read the insurance guides published by MoneySense.

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6 comments
Elly says 10 years ago

Hi,
Wld very much appreciate yr advice on above:
1) I advise my relative (male, age below 40 yrs) to buy term insurance.
2) However, he was advised by agent to buy Vivo life (50K) + LUV term insurance (100K, mthly premium is $20
3) To buy LUV term insurance, he needs to join as NTUC member, mthly membership fee is $9.
4) Is the above combination a good deal?
Would like to hear your veiws.
Thank you.
Elly

Reply
    Hopeful says 10 years ago

    Hi Elly,

    Personally, I think it is a good deal.

    Let me explain…
    In insurance, there are 2 general schools of thought…
    1. Buy term and invest the rest.
    2. Buy traditional Whole life / Critical Illness (e.g Vivo)

    The problem with traditional insurance is that the yield is low (~2%). I believe it is so for Vivolife. So if a person is thinking of traditional insurance for his retirement, he will be greatly disappointed! Inflation will probably be even higher than the yield. Also, the policy holder must have the financial means to pay all the premiums (limited years for Vivolife) to enjoy the benefits. It was told that for traditional insurance, only 1 % of the all policy holders was able to pay premium till age 65. It means 99% actually default and lose big time. Anyone cares to verify this?

    The problem with buy term and invest is that not many people know how to invest properly.

    In order to help your relative, you need to answer the following questions…

    Do you think your relative has the financial means (job security, debt level) to pay all the premium for Vivolife?

    Do your relatively has a positive proven result in investment (shares, etf, bonds, etc)?

    If your relative has no good answer to the above questions, then what the insurance agents proposed make sense. It is like taking the middle path.
    It means do not stretch your budget too thinly and if you have extra then invest.

    This is just my opinion. I employ the middle path as well. I have traditional insurance (But only Critical Illness) and I do my own investment.

    Reply
      Elly says 10 years ago

      Hi Hopeful,
      Thank you very much for your opinion.

      I am aware that we must have some kind of financial planning, but I am not well versed with the financial/insurance products.

      I am trying to help this couple, with 2 very young kids, to take up some very basic financial planning before it’s too late.

      I was young before. I almost wanted to surrender my life policy midway, when times were really bad. But somehow I managed to hang on. That’s why I don’t encourage them to commit too much into these insurance policies. Afterall, there are other every day things to take care of first: housing loan, renovation loan (ending soon), children’s education policy, childcare fees, food, etc.

      All the points that you raised up are very valid. Btw, the Vivolife & LUV also include critical illness plan. I am quite relieved to here that this plan is middle path. Ya, I think this plan suits them fine for the time being.
      I have also asked them to take up NTUC medishield and rider plus. Thank you for making me feel confident that I have helped them choose something right. I think investment will come at a later stage when they have accumulated some $$$.

      Thank you once again!
      Regards
      Elly

      Reply
    lioninvestor says 10 years ago

    Hi Elly,

    I think the question to ask first is how much coverage your relative already has and how much more he needs (depending on how much his dependents depend on him)

    Hopeful has raised some valid points which you can consider.

    Reply
      Elly says 10 years ago

      Hi lioninvestor,
      Thank you so much for your response.

      Sad to say, this relative did not have any life coverage until now!
      Now that he has a family, I think he needs to plan for his family incase something untowards happen to him someday.

      I am learning alot from your write-ups every now and then. From what I have learnt, I try to improve myself and also help others in whatever litle way that I can.

      Thank you once again.
      Regards
      Elly

      Reply
        lioninvestor says 10 years ago

        Hi Elly,

        You are welcome. Better late than never.

        One rough way of calculating is to find out how much expenses his dependents need, and multiply it by the number of years required.

        Note that this is very rough and your relative could get better advice if he does a proper insurance planning.

        Reply
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