Saturday, October 31, 2009
I like to share the steps to take before you finally decide to terminate any policy.
1) Compile all your insurance policies and go through a risk management analysis
* We must first know what we have and know what we need before we can evaluate if that policy should exist in our portfolio.
* We should understand if this plan is able to give us the necessary protection or the necessary savings component.
2) Understand the benefits of your current plan
a) The potential returns?
* Ask for the latest Benefit Illustration from the Insurance company. If you are not looking for the protection component, are you looking for the wealth accumulation part?
* If the policy have been around for many years, the cost of the policy would have already been incurred many years ago and the yield looking forward can sometimes be very attractive.
* There are some policies that gives attractive anniversary bonus which can be worth waiting for if its only 2-3 years down the road.
b) The terms and conditions?
* Some older policies have terms and definitions which are beneficial to the policyholder.
* It can be such that the TPD or CI definition be less stringent on the insured compared to current definition.
.* If one is to surrender the plan for a new one, he/she will have to adhere to new definitions
c) The cost of protection?
* As the policy could have been purchased many years ago, the cost of protection could have increased compared to if you get the same coverage today.
3) Are ILPs really that bad?
I do not recommend regular premium ILP if the person do not have it now but if the person already have it and already have it for a couple of years, I'll not tell him/her to surrender it? Why?
a) The high cost of an ILP is already paid in the initial years
Since the future cost is considerably low, then we should reap on the benefits of what an ILP can give us and not to just terminate it.
* Some ILPs gives as much as 108% allocation after X years, this will help you accumulate funds faster
* Most ILPs offers yearly renewable term insurance which gives very high coverage at very low cost. If the insured is still young and have a high dependency needs, why not just let it continue to enjoy the low premium?
b) How about the high mortality cost in later years?
* It will be tricky if the insured purchased the ILP in his/her lat 40s or 50s because they would not have accumulate much fund in the policy and yet have a high mortality cost to pay.
* For such circumstance, they have to evaluate if their current needs warrant a high insurance coverage. If yes, then they may have to review their policy more regularly to reduce the Sum Assured when their investment value increases.
* There are some ILPs that take into account the accumulated investment value to reduce the insurers "Sum at Risk". When the Sum at Risk reduces, the cost of insurance will reduce as well.
Is there a need for a Limited Premium Whole Life policy?
* I dislike the idea that the policyholder is told to buy another whole life policy simply because the current Whole Life plan is not a limited premium one.
* The concept of a Limited premium whole life plan is to ask the insured to pay XX% higher premium compared to a regular premium plan so that the XX% extra premium collected can be used to fund for future premium payment.
* This concept can actually works for many regular premium whole life plan because they can be converted into a "paid-up" value policy where the insurer use the current cash value to calculate the sum assured that the insured can enjoy even if he/she stops the premium today.
* It is unfortunate that it is difficult to calculate the "paid-up" Sum Assured if the insured is to continue the premium payment many years down the road and many people will eventually prefer to buy another whole life policy as they would have the numbers to see.
Is your needs the highest when you are old?
* Many advisors like to say “When you are old, this is the time you need insurance most because you have the highest chance of contracting it”.
* Highest chance = Highest need? In my opinion is flawed. It actually the reversed, the needs are lower when we are old because its very likely that
a) Our dependents are independent
b) Our liabilities have reduced
c) Our assets have increased
d) The person might have already retired and not necessary to protection the loss of income
e) Risk appetite for investment reduced with lower risk of major investment fluctuations, etc
* We should be concern with accumulating that asset to self-insured into our older age instead of getting more whole life policies to achieve it.
* We should be concern if we have a good medical and "Long term disability care"coverage into our retirement years.
Restructuring of insurance portfolio can be necessary at times but do not fall into the situation whereby you terminate your ILP or Whole Life plan unnecessarily or worst, buy another whole life plan simply because it is limited in premium.
Tuesday, October 27, 2009
One common objective of these advisers who asked their clients to terminate their Whole Life plan or ILP is by asking them to buy another Limited Premium Term Whole Life Plan. Even if they can’t convince them to surrender the existing policy, they will still tell them to get one more whole life plan as if a limited premium term whole life plan is a “must have” type of policy.
When these advisers see a regular Whole Life Plan, they will emphasize to their client that they have to pay whole life for their whole life plan and why not switch to a limited term one? They will also harp on the point that it will tough to pay when you are retired and you may have to surrender the policy when you do not have money.
When they see an ILP, they will keep emphasize to their client that they will have to pay a high mortality premium when they reaches 60 or 70 years old and focus on the fact that the mortality charges will exceed the premium paid at certain age. They will further harp on the point that they will not get the necessary cover when they are old. They will also like to say “When you are old, this is the time you need insurance most because you have the highest chance of contracting it”.
What they said are not entirely untrue and some of them sincerely do have client’s interest at heart but they may not realize the implications for doing so.
Some of these advisers did not bother or do not know how to analyze that existing policy’s future projections or failed to see the benefits of the existing plan in their current situation. They simply harp on the “Whole Life” premium payment and “High Mortality cost” issues.
The above are often said by newer advisers who were taught by their manager to say all these things. The new adviser may innocently do what he/she thought is right and best for client based on what their managers teach. It is even more unfortunate that some of these managers may be practicing the above themselves and passes the wrong message to all their new advisers.
I want to reiterate that I’m not saying that all advisers or managers are what I described above but these are things that I had observed over the years on some advisers. I’ll write more in my next posting about this issue.
(I’ll not accept any comments that are not constructive)
Sunday, October 25, 2009
After the tram ride, we had a short walk to the site for Elephant Show
We proceed for lunch thereafter at the Ah Meng Resturant
It was a very simple 3 course lunch with chicken, vegetable, toufu and rice. It was simple but the old folks really enjoyed themselves.
We had a stroll again after lunch and waited for the SeaLion show which I admit was fantastic. It was around 3pm when everything ended but the rain started to pour and all of us have to scramble for umbrella and bring every old folk to the carpark where the bus was waiting for us.
The old folks was very happy after the event. They kept talking to us though I don't understand all that they said. Everything was perfect except for the rain and an incident where 2 old folks fight using their tongkat. Can't imagine old folks at 80 yrs old also fight.
Breaking Barriers Carnival
A fundraising and public awareness event by Society for the Physically Disabled)
Date: 14 November 2009, Saturday
Time: 10.00am to 9.30pm
Venue: Ngee Ann City, Civic Plaza
For every $2 donation for the "Breaking Barriers" Voucher, you can look forward to getting yourself a balloon sculpture, playing the fishing game scampering on water in a giant plastic ball, getting a chance to win fabulous prizes, taking control of a powered wheelchair to complete an obstacle course and having a fun picture taken by SPD’s clients.
Also at the carnival will be a charity bazaar by SPD’s staff and volunteers as well as all-day song and dance performances and special appearances by MediaCorp artistes!
Let me know if you are interested. I can send up to 2 vouchers free of charge to your house but will appreciate if you can be there to support the event. Your contribution will play a part in empowering people with disabilities to become self-reliant and independent.
Tuesday, October 20, 2009
Over time, this crab business became competitive and the fishermen decided to differentiate their crabs. They decorated the shell and increased the price to $40/kg. The distributing agents were good and were able to convince people that crabs with decorated shells should cost $10 more than the one without decorations.
Over time again, every fishermen started to decorate the crabs shell and they see a need to differentiate themselves again. They decided to "Re-brand" and called themselves "The Hip Generation" crabs producers. They spent millions to advertise and promote their crabs and raise the price of the crabs to $50/kg. The fishermen also started to pay a higher rate of commission to the distributing agents because it is harder to sell a $50/kg crab than the $30/kg crab.
The distributing agents were good and still able to sell the crabs at $50/kg by telling their customers that the decorated crabs with rebranding gives more benefits. Some were even awarded with Million Crabs Rattan Table (MCRT) for every $100,000 worth of crabs they sold in a year. The fisherman's affliated Associations then brand MCRT as if they were more professional just because they are able to sell more $50/kg crabs.
Some of these distributing agents are very well trained and started to earn a lot of money compared to the fish sellers. Some of them do not care whether the Crabbylanders need a $30/kg crab or the $50/kg crab. Younger agents are then roped in to sell more $50/kg crabs.
Some people started to realise that by buying the $50/kg crabs, they are able to eat lesser of the Crystalbelle crabs and hence resulted being less happy and healthy. These people started to query the National Crabs Association if they should stop the sales of the $50 crabs. Instead the National Crabs Association now requires the distributing agents to file a 20 pages reports as of why the consumers need to buy the $50/kg crabs and not that $30/kg crabs. However this move is not successful because the agents are trained by the fisherman to justify that the $50 crabs are better. Therefore the sales of the $50 crabs continue to soar and people pay that extra $20 for less happiness and health.
Today, there are 3 groups of people who feel that the practice need to change.
1) The first group feel that the fisherman should stop selling the $50/kg crabs and start to re-focus on the $30/kg crabs which the people needed, just how things are when the trade started. They believe that decorated crabs or non-decorated crabs brings the same health and happiness to the crabbylanders.
2) The second group feel that they should be paid a $100/hr to advice crabbylanders on how to source for the $30/kg crabs or even a $25/kg crab as they can save $5 on the distributing agents commissions. They feel that the agents will always sell the more expensive crabs because they want to earn more money. They may not need to bother if the person buy crab eventually.
3) The 3rd group feel that the shells should be removed before they are being weighed. They feel that it is not fair that people pay for the shell that they don't eat. They feel that the fisherman and agents are not ethical by selling the crabs with shell.
The 3 groups of believers faced a lot of challenges.
1) No fisherman dare to sell only the $30/kg crabs again because the sales of the $50/kg crabs are still going well. If they start selling the cheaper crab again, no distributing agents will want to work for them and their bottom line will be affected.
2) There are not many people willing to pay for crab consultancy. There was no guideline as of how much crab consultants should be paid. Crabbylanders are known to demand for a $100 job for each $10 paid.
If the National Crab Assocation is to ban commission, many crabs distributors will go out of job because they cannot be paid $10 for a $100 job. When there are less crab distributors, less people will be told the good benefits of Cystalbelles Crabs.
3) The fisherman cannot just sell the meat without the shell as their profit margin will be greatly reduced. Over long term, these fisherman will find that the business is not viable and get out of Crabbyland. When this happens, Crabbylanders may not be able to enjoy the benefits of Crystalbelle Crabs anymore.
Many supporters of the above 3 groups started to put the blame on the distributing agents without realising that it started from the fisherman. There are good and bad distributing agents but they are often grouped together to be called unethical. They did not realise that the distributing agents had played an important role in convincing crabbylanders to eat Crystalbelle crabs and are needed serve their long term interest of health and happiness into the future.
The National Crab Association don't seems to do much except designing more directives for the distributing agents and spending more money to audits them. They probably need to put more pressure on the fisherman instead on why the $50/kg crabs are there in the first place. The fisherman should design a more innovative payout schemes for their distributing agents and yet able to serve Crabbylanders' interest over the long term.
Its perfectly fine if you don't know what crab I'm talking about. Crititize me as crap if you like it because what I wrote is indeed crap. I got the idea after eating Yummy Crab along Changi Road last Sunday.
Sunday, October 18, 2009
I will not be using term plan to directly compare with WL plan because the Sum Assured that I normally recommend to my clients are not the type of small sum assured from Whole Life plan.
I'll take a few examples of the good Term plans around namely NTUC Income Family Insurance Plan, HSBC Mortgage Reducing Term and the AXA decreasing term plan. These 3 plans are very competitive in premium for their own class.
NTUC Income Family Insurance Plan
Example - Male age 30, $200,000 Living Rider, $300,000 Term Rider, $200/day Hospital Benefit Rider (30 years coverage)
Premium - $1,549.30/yr
First Year Comm
$1,549.30 x 10%(Commission Rate) + 45%(Overriding) = $224.64 (Paid to Company)
$224.64 x 59% = $132.54 paid to me for the 1st year.
$132.54/12 = $11.05/month for the 1st year
Renewal Year Comm
$1,549.30 x 10%(Commission Rate) + 30%(Overriding) = $201.41 (Paid to Company)
$201.41 x 59% = $118.83 paid to me from 2nd year onwards
$118.83/12 = $9.90/month average for the renewing year
HSBC Mortgage Protector (Joint Cover)
Example - Male + Female age 35, $500,000 x 25 years at 4% interest
Premium - $946.40/yr
First Year Comm
$946.40 x 12%(Commission Rate) + 50%(Overriding) = $170.35 (Paid to Company)
$170.35 x 59% = $100.50 for the 1st year paid to me
$100.50/12 = $8.37/month for the 1st year
Renewal Year Comm
$946.40 x various rate for next 4 years = $189.28 Paid to Company over 4 years
$189.28 x 59% = $111.67 from 2nd year to 5th year
$111.67/12/4 = $2.33/month average over 2nd to 5th year
AXA Decreasing Term
Example - Female age 35, $1,000,000 x 30 years at 0% interest rate
Premium - $910.00/yr
First Year Comm
$910 x 16.80%(Commission Rate) + 0%(Overriding) = $152.88 (Paid to Company)
$152.88 x 59% = $90.20 for the 1st year paid to me
$90.20/12 = $7.52/month for the 1st year
Renewal Year Comm
$910 x various rate for next 5 years = $633.36 Paid to Company over 5 years
$633.36 x 59% = $373.68 from 2nd year to 6th year
$373.68/12/5 = $6.23/month average over 2nd to 5th year
As you can see above, we can hardly earns $10/mth for each of above term cases. When we do proper comparisons for our clients, these are the type of policies we will eventually recommend and it is hard to convince ourselves for other plans that pay us better. It is normal that the lowest premium for clients frequently translate to lowest comm for us.
Simple Mathematics: Calculate how many of such cases we have to do before we can earn a simple wage of $2,000/month.
Saturday, October 17, 2009
I refer to Mr Tan Kin Lian’s Forum online letter “Hidden Charges in Insurance Policies” on 13th October.
Mr Tan seems to highlight only the disadvantages of an Investment Linked Policy without writing on how the policyholder may benefit from it.
There is a yearly renewable term assurance coverage incorporated into an ILP which allows the policyholder to get the necessary coverage at a very low premium which is normally lower than a level-term plan. This will allow the policyholder to direct a larger portion of the premium into investments compared to the policyholder who gets a pure term plan.
When the policyholder is to reach near retirement age where the mortality charges increase significantly, the policyholder will be advised to reduce his coverage as his investment should have accumulated to a level where he can self-insure a larger part of the original Sum Assured and the fact that his insurance needs should have decreased by then.
Mr Tan also seems to emphasize that the unallocated investments during the initial years are used to pay a high commission to the agent. I’ll like to highlight that not all insurance companies pay a high commission. There are companies that charge the policyholder reasonably and pay the agent reasonably.
There are commissions paid to an agent for whatever plan that he or she recommends under the current environment where most Singaporeans are seemingly not willing to pay a fee for advice. Whether it’s a term, Medical or Accident plan, there are commissions paid and ILP is of no exception. The agents should be compensated for the advice, time and the years of service that he/she have to provide for the policyholder.
Mr Tan’s letter might create an impression that all Insurance agents have intent to hide charges from their customers. There are certainly black sheep in the industry but they should not be grouped together with the honest group of advisers who are transparent with their clients.
The letter might also create another impression that the insurance agent gets 100% of the unallocated investments. We must not forget that there are many other departments in an insurance company, including the CEO who are direct or indirect beneficiaries of all these funds.
I agree with Mr Tan that the current charges for ILP are generally high. I will encourage buyers to make comparison before making a decision to get into such plans. I also like to propose to MAS that they can consider setting a cap on how much the insurance company can charge for all such policy and I also look forward on more innovations from the insurers on how they can design a plan for the benefit of the policyholder, company as well as the adviser.
Thursday, October 15, 2009
I like to quote 2 examples of a Whole Life plan from TM Asialife that I marketed more based on a 5 years limited premium and a 20 years limited premium plan of $100,000 for a baby girl.
I used this example because I did a few 5 years limited premium TM Legacy this year. Not because I purposely propose this plan but they requested for it after due calculation and research and their family circumstances allows them for such purchase. I pretty like this plan because it allows a very competitive premium for a larger cover under such class of insurance.
TM Legacy - 5 Yrs Limited Premium
TM Legacy Premium - $1,978 /yr + CI Accelerator - $433/yr
First Yr Comm
$1,978 x 10%(Comm Rate) + 85%(Over-riding) = $365.93
$433 x 10%(Comm Rate) + 25%(Over-riding) = $54.13
Total 1st Yr Comm = $420.06 (Paid to Company)
Renewals Comm - 2nd to 5th Yr = $316.24 (Paid to Company)
What I gets over 5 years = ($420.06 + $316.24) x 59% = $434.42
Average over 5 years, I get $86.88 / year or $7.24/mth.
TM Legacy - 20 Yrs Premium Term
TM Legacy Premium - $682 /yr + CI Accelerator - $171/yr
First Year Comm
$682 x 40%(Comm Rate) + 85%(Over-riding) = $504.68
$171 x 40%(Comm Rate) + 25%(Over-riding) = $85.50
Total 1st Yr Comm = $590.18 (Paid to Company)
Renewals Comm - 2nd to 6th Yr = $463.96 (Paid to Company)
What I gets over 5 years = ($590.18 + $463.96) x 59% = $1,054.14
Average over 6 years, I get $175.69/year or $14.64/mth.
(Above are based on a 60% banding that I'm receiving from my company right now. My earnings will drop to 55% banding by next year if I'm not able to bring in $60,000 for my company. This means all will multiply by 54% next year which translate to a drop in earnings for future comm.)
I like to put a disclaimer for myself that my priority for my clients are Term coverage for the maximum needed protection first and I have my conditions before I recommend a Whole Life plan which have never been above $100k.
Monday, October 12, 2009
I hope those who read this posting understand that the adviser who took hours to patiently explain the features, who filled up 30+ pages of documentation works in compliance with MAS regulations, who negotiate with the underwriters for substandard cases, who helped with all type of queries, who helped with claims, who update on changes, etc are NOT earning a lot of money. He is really helping people and not trying to be unscrupulous by scaring people to buy a medical insurance. If he is unethical, he will rather spend his time telling them about ILPs or Whole Life policies.
I swear that it is a lot of work for an adviser who have hundreds of clients under Shield plans.
I take the Enhanced Incomeshield as an illustration based on age 1 and 55 for Plan Basic and Preferred.
Premium for Age 1
Medishield - $33(Not sure if they include GST)
Basic - $70 ($65.42 before GST)
My 1st Yr Earnings - ($65.42 - $33) x 30%(Commission Rate) x 145%(Over-riding) = $14.10 (Total paid to my company)
59% of earnings from my company will be paid to me which equates to $8.32.
My Renewal Earnings - ($65.42 - $33) x 5%(Renewal Rate) x 130%(Over-riding) = $2.11 (Total paid to my company)
59% of earnings from my company will paid to me which equates to $1.24
Premium for age 55
Medishield - $225
Basic - $340 ($317.80 before GST)
First Year Earnings - ($317.8 - $225) = $92.8 x 30% x 145% = $40.36
My Earnings = $40.36 x 59% = $23.82
Renewal Earnings - $92.80 x 5% x 130% = $6.03
My Earnings = $6.03 x 59% = $3.56
If based on Plan Preferred, I'll get more. Using the same calculation, I'll get
Age 1 - $22.95 First year / $3.42 Renewal
Age 55 - $90.72 First year / $13.56 Renewal
I have many clients below age 40 who like the plan preferred but very rarely for those above 50 who are willing to pay such premium.
Not only we don't earn much, our chances of not earning a single cent is very high, especially for clients above 50 as they would have many pre-existing conditions which make underwriting very difficult. The client may give up in the end.
I hope when you look at the advisor who are just doing your Shield Plan, treat him nicely and don't look at him as if he makes a lot of money from you. But of course, he must do his part as an adviser too.
Thursday, October 8, 2009
Aviva - MyShield
Monday, October 5, 2009
The dish taste decent to me. The fragrance of the rice is up to my standard. The chicken was sufficient tender as I ordered the Drumstick and the chilli + ginger sauce are still my favourite. The letdown is the soup which taste a bit too salty as if there are are lot of MSG. The serving is also a bit too little for me. I believe a plate of plain rice will cost me a bomb and and hence did not order another bowl of rice.
I don't think I'll come back here again unless I have a lot extra cash to spend. I treated my friend as he is nevertheless a guest to my country. With GST and Service charge, 2 plates of chicken rice cost me $60+. I can never imagine that I'll spend so much money just to eat "Chicken Rice"...
Friday, October 2, 2009
I replied to her that she should look into other benefits in the long term other than this "Pre-existing clause. It is a bit too extreme to say that she is in a vulnerable position just because of the "Pre-existing Illnesses" definition.
a) Her policy was already been inforce for several years. It is very difficult for the insurer to prove that a Pre-existing condition exist prior commencement of the policy. If the insurer is to refuse the claim, they have to prove this point.
b) It is not the responsibility of the insurer to refuse a claim when it happens. The pre-existing condition clause was present to largely protect the pool of policyholders against anti-selections. Every claims should be viewed objectively with this in mind.
c) Aviva have around 100k+ policyholders for their Myshield Plan and is known to make around 5,000 claims per year. It is not heard of many cases whereby Aviva rejected claims purely based on Pre-existing illnesses.
Patrick Lim - http://www.patlim.blogspot.com/ wrote about it in sgfund forum and I like to share what he found out from Aviva when he asked about the "Pre-existing Illnesses" issue.
++ Quoted ++
In determining whether a condition is 'pre-existing', Aviva will determine whether there is a clear clinical association between the condition being claimed for and the clinical manifestation, diseases that may have occurred PRIOR to commencement of the policy.
If NO, the claim will be payable. At claims stage, all assessments will be made objectively based on medical reports obtained. When a policyholder develops a medical condition after inception of myshield, our approach for the 3 scenarios quoted will be:
If this is not known to him/her? We will ascertain whether his/her condition would have originated prior to policy commencement regardless known or unknown to the claimant. If yes, claim will be rejected.
If no, claim will be paid.
After a short time on inception of the policy?
Duration of policy commencement may not be the key basis to reject claim. We will ascertain the possible onset / duration of the illness in comparison to policy duration.
However, early claims could be easily supported as compared to policy which has been incepted for many years.
Donkey years after inception of the policy?
When the policy has been incepted for many years, it would make clinical evidence difficult and most of the time we would admit if there is no symptom or treatment rendered prior to policy commencement.
Lastly the question on 'under what scenarios will Aviva admit and pay claims on pre-existing conditions', we will adopt the two broad approaches:
(1) If it is a proven pre-existing condition for 'New' policy, we will reject. But if medical information is inconclusive, we will give benefit of doubt to the policyholder and pay the claim.
(2) In the case of 'Takeover' policy, if such pre-existing condition/s would have been covered under previous Shield coverage (except MediShield), Aviva will pay.
++ Unquoted ++