Zaobao Interview: Life Insurance

There has often been complaints by consumers over different facets of insurance. They mainly pertain to grievances over buying products that do not deliver what's promised. What is your advice to consumers who wish to buy insurance or who have already bought insurance?

Reply:
Life insurance is important. A breadwinner needs life insurance to provide a sum of money to the family, in the event of his or her premature death or permanent disability. The need is greater for families with young children.

Many insurance companies offer products to meet this need, but they bundled the insurance needs with compulsory savings. These are sold as endowment and whole life products. These products are sold by insurance agents who earn high commission. The company also incur expenses in their administration, provide for the cost of insurance and make a profit for their shareholders. These expenses take away about 2% to 3% on the investment yield.

In the past, when the investment yield was high, the insurance company can still provide a fairly attractive return to the policyholder. But, when the investment yield came down in recent years, the net yield was unattractive.

My advice to consumer is to find an insurance company that incurs low expenses and is able to give a better return to the policyholder. The difference can be as much as 15% to 25%, depending on the type of insurance plan and the period of insurance. If an insurance company with high expenses pays you $100,000 on maturity of the policy, another company with low expenses may be able to pay you $15,000 to $25,000 more.

Another option is to buy term insurance to protect your family. The cost is term insurance is less than 20% of the cost of a whole life policy. You can invest the remainder of your savings separately in an investment fund. You will be able to get a better return on your savings. This is usually much more than the cash value of your endowment or whole life policy.

Tan Kin Lian