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Sunday, January 22, 2006

Why is term insurance not popular?

Someone asked me, "Why is term insurance not popular?"

The answer is, "agents prefer to sell endowment and whole life insurance".

For example, a policyholder can buy term insurance for $100,000 over 20 years by paying a premium of $400 a year. If they buy a whole life policy, they pay a premium of $2000 a year.

Agents can earn commission of up to 1.5 years of premium when they sell a whole life policy. Yes, they can earn $3,000 on selling a whole life policy to you. You pay for it through the higher premium.

They earn less on their term insurance policy. Maybe $200 to $400 in commission.

So, agents sell whole life and endowment policy. They tell the customer that this is a better plan for the customer. They did not tell the customer that they earn a higher commission.

In reality, the customer is better off to buy a term insurance and to invest the difference in a unit trust or investment linked plan (such as the Ideal plan from NTUC Income) where 100% of the savings is invested.

Be careful about buying a ILP from other insurers. They may take away 1.5 years of your savings as well.

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