Transparency in life insurance

A life insurance policy provides two useful services:
a) insurance against premature death
b) investments of savings for the future.

For the first service, the consumer wants to pay a fair price. The consumer does not want to be overcharged,compared to similar insurance offered by other providers. For the second service, the consumer wants to get a fair yield, comparable to the yield that can be obtained from other investments with similar risk profile.

A good insurance policy is transparent and give good value to the consumer. Unfortunately, there are many life insurance products that are not transparent and give poor value to the consumers. It is difficult for the consumer to distinguish between the good and bad products.

The benefit illustration for the insurance product can give some indication about the fairness of the charges and the yield. Look at the distribution cost, which is the amount that is taken from your savings. If it is $1,000 or more, it seems to be excessive. Do you really want to pay such a high fee to the insurance agent, who may be someone that you do not know previously? This fee is taken away from your savings, which is the same as being paid directly.

You can also look at the "effect of deduction". This is the total amount that is taken away from your "accumulated premiums" during the lifetime of the policy. If this amounts to a high percentage of the accumulated premiums, then you are being offered a policy of poor value.

I have written a separate article about the the percentage that is fair, and the percentage that is excessive. If you are not sure, you can write to me at kinlian@gmail.com. I can answer you directly or refer you to FISCA, www.fisca.sg

A life insurance policy can represent a large part of your future savings for a lifetime. Make sure that you get a fair deal and a good yield. Make sure that you are being advised by a honest agent who takes care of your interest (and not his own personal gain). Do not make a bad investment that will penalise you for a lifetime.

Tan Kin Lian