I have often been asked to give my views on whether a specific life insurance policy is worth buying. It is quite inconsiderate for consumers to ask this question to me, and I often feel like telling them off.
If they take the trouble to attend the talk on Financial Planning and spend $30 and 3 hours, they will get to know why most of these policies should be avoided, and more importantly, what are the better ways to invest their savings.
A typical example that I have quoted many times is as follows:
If you save $500 a month over 35 years and earn an yield of 2.5% per annum on the life insurance policy, you will get around $300,000 as cash value at the end of the period. If you invest the same money in an exchange traded fund that is invested according to the Straits Times Index, you are likely to get about $500,000.
By investing in the life insurance policy, you will be giving away $200,000. You can get an accident or term insurance policy to cover $300,000 by paying an annual premium of $360 or less. Over 35 years, you will spend only $40,000 (including interest lost), but you can save $200,000.
The consumer should ask the insurance agent to tell them about the distribution cost of the policy. This is shown in the benefit illustration and could be $10,000 or more. This is the money that is taken away from the consumer to pay commission to the agent and other parties in the distribution chain.
Here is the irony. If the consumer buys the insurance policy from the insurance agent, he (or she) is giving away $10,000 for a bad investment product. The consumer now wants me to spend the time to explain why they should not buy the policy, and experts to get it for free.
Sometimes, I recommended to the consumer to approach a fee-based financial adviser (and I gave a list of people that they can contact). But, in most cases, the consumer does not want to spend $200 or so, to pay the adviser.
Do you think that our consumers deserved to be ripped off, for being lazy and for being ungrateful?
Consumer can attend the talk on financial planning organized by FISCA, and other talks on investments by registering at http://easyapps.sg/assn/Org/Event.aspx?id=5
They can buy my book on financial planning and life insurance at www.tankinlian.com/ishop.
They can get the advice from a fee-based financial adviser here:
http://easyapps.sg/assn/Org/Information.aspx?id=5 (Click on FISCA Assistance category)
They can also give away $200,000 by buying a bad life insurance policy. They do not need to spend $30 (for the talk) or $200 for the fee-based advice.
Tan Kin Lian