Misconceptions about insurance

Published in Straits Times Online Forum
I REFER to the ongoing discussion on insurance products (Mr Gideon Lee, "Buyers, not agents, decide the products they want..."; Nov 5), and would like to highlight some misconceptions.

Whole-life policies that "give back" the premium come with higher price tags. For a young healthy male who is just starting his career, a coverage of $500,000 for term insurance costs around $2,000 a year, whereas a whole-life policy with the same coverage could cost around $10,000 a year.

The difference in the premiums between the term and whole-life policy is invested by the insurance company and a significant portion is pocketed by the company before the remainder is returned to the customer.

Whole-life insurance policies provide only the illusion of "giving back" some of the premium paid. It is akin to pulling money from your right pocket, taking some of that for myself, and putting the remaining amount back in your left pocket.

I simply do not see how this is a good deal when consumers can pocket the difference, save and invest the money by themselves. The claim that many customers prefer a policy that "gives them" something at the end shows their lack of understanding of the purpose of insurance - that it is meant for protection against catastrophic effects and not for savings. So one should not expect anything back if the catastrophic event does not occur.

Garrett Goh
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