Someone asked me, "How does a life insurance company make money after giving away high commission to the sales people?"
The simple answer is - by taking away a large part of the return that should go to the policyholder; leaving a poor return to the policyholder.
Take the example of a person who saves $6000 each year over 30 years. The total savings is $180,000. If the savings are invested to earn a yield of 5% per annum, the total accumulated amount would be $400,000. The investment gain is $220,000.
Now guess how much of the gain is given to the consumer? Typically, the consumer gets $80,000 and the insurance company takes away $140,000 to pay commission and other expenses and keep the rest as its profits.
A fair amount to be taken away to provide the insurance cover and the administrative services should be $60,000 and not $140,000. If the consumer decides to buy term insurance to provide the cover, the cost should be only $15,000.
Most consumers are not aware that they are offered a financial product that provides a poor return (about 2.5% per annum); as a large part of the potential gain is taken away as expenses and profit.
To learn how to make a better plan for your finances, attend the talks organised by FISCA (www.fisca.sg). Your future and your family's future depends on your taking this important step.
The simple answer is - by taking away a large part of the return that should go to the policyholder; leaving a poor return to the policyholder.
Take the example of a person who saves $6000 each year over 30 years. The total savings is $180,000. If the savings are invested to earn a yield of 5% per annum, the total accumulated amount would be $400,000. The investment gain is $220,000.
Now guess how much of the gain is given to the consumer? Typically, the consumer gets $80,000 and the insurance company takes away $140,000 to pay commission and other expenses and keep the rest as its profits.
A fair amount to be taken away to provide the insurance cover and the administrative services should be $60,000 and not $140,000. If the consumer decides to buy term insurance to provide the cover, the cost should be only $15,000.
Most consumers are not aware that they are offered a financial product that provides a poor return (about 2.5% per annum); as a large part of the potential gain is taken away as expenses and profit.
To learn how to make a better plan for your finances, attend the talks organised by FISCA (www.fisca.sg). Your future and your family's future depends on your taking this important step.
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