Fineprints have literally become so small you need a magnifying glass to read it
Very often I find that the insurance portfolio of my clients consists of buying investment linked policies with very low protection benefit but at an exorbitant premium. The only 'good' policies they have would usually be CPF’s Dependents' Protection Scheme and the Aviva SAF Group Insurance.
(To those who are not sure whether are they insured with the Aviva SAF Insurance, they can check their certificates whether they have bought any of the following policies:
- Aviva SAF Group Term Life Insurance
- Aviva SAF Group Living Care Policy
- Aviva SAF Group Living Care Plus
- Aviva SAF Group Personal Accident Insurance
- Aviva SAF Group Disability Income Insurance
- Aviva SAF Group Outpatient MediCare)
The following is a breakdown of money spent on insurance from a randomly picked client of mine who represents a typical messed -up Singaporean’s insurance portfolio:
- Total death benefit across all insurances: $797,479
- Total annual premium across all insurances: $9,957.60
- Annual premium paid for DPS and Aviva SAF Group Term Life: $957.60
- Total death benefit for DPS and Aviva SAF Group Term Life: $649,000.
- The rest of the policies are investment linked policies.
Do note that nearly 10% of the premium paid annually is for more than 80% of the protection value. Or put it the other way round, 90% of the premium is used to pay for only 20% of the protection value! Unfortunately, the bulk of the protection is not even guaranteed renewable! The Aviva SAF Insurance for Nsmen can be terminated at any time. I could not find this fine print on Aviva’s website. The so called terms and conditions of the Aviva SAF Insurance for Nsmen came as a separate sheet of paper. The following is a paragraph from the relevant section (underline mine):
As the Policyholder, SAF reserves the right to negotiate any modification, amendment, suspension or discontinuance of any or all the provisions of the Group Policies with the Company at SAF's absolute discretion. All endorsements, changes and amendments to the Group Policies will be binding on you without prior notice.
If a particular Group Policy is terminated between the Policyholder and the Company, your insurance cover under that Group Policy will be terminated too.
The following is a scanned portion just in case you think I make up the story:
The fonts are so small that I could hardly read! Perhaps I am getting old or the fonts are indeed small! To appreciate how small the fine prints, here is the scanned copy of the entire A4 terms and conditions HERE.
Most people will say, “if Aviva SAF Group Insurance is terminated, I will buy a replacement”
The problem is that you may not be insurable anymore.
You may ask, “should I terminate the Aviva SAF Group Insurance?”
No you should not terminate. The Aviva SAF Group Insurance still serves its purpose. Despite having the bulk of your protection portfolio on something that is not guaranteed renewable, you find that there is practically no alternative. You see, the life insurance industry in Singapore has ceased selling insurance products. The bulk of the premium collected by the insurance companies has nothing to do with insurance. See this post on LIA’s robust sales figure in life insurance unrelated to insurance. This means you will find your typical insurance agents and ‘independent financial advisers’ wouldn’t want to transact insurance for you. There may be 15,000 financial advisers in Singapore but 14,999 are unwilling to help you get a proper insurance cover. However, they will be more than happy to help you transact investment linked policies. This is the reason why most of my new clients’ insurance portfolios end up having 90% of the premium to pay for only 20% of the protection value.
What is the reason why financial advisers don’t like to sell insurance?
The reason is simple: money. There is no money to earn for selling term insurance. Most financial advisers are self-employed. They have a high overhead to pay. Some even have to pay rental. Also it takes a much longer time to underwrite a high sum assured policy compared to say a policy that is purely for investment. The time spent on transport, quarreling with underwriters, arranging for medical checkup, anti-money laundering check ends up having negative commission.
When the new Balance Scorecard is introduce in 2015, financial advisers will be penalized for up to 60% of their commission if the paper work is not solid enough. If the insurance only pay $100 in net commission and 60% is potentially going to be confiscated due to poor paperwork , the remaining $40 wouldn't make sense at all.
On the other hand, if the commission is $10,000, it is still a lucrative business deal despite having 60% of the commission confiscated because there is still $4000 left for enjoyment. How to get $10,000 in commission? Easy lah. Just sell $1000 monthly premium “101” ILPs. The approximate gross commission is $12,000. Assuming a banding of 85%, the net commission is 12000 x 85% = $10,200. So just sell two of such ILPs in a month and still can get $8000 in monthly pay despite 60% of the commission confiscated due to poor paper work!
On the other hand, how many policies should an adviser sell to earn $8000 for a $100 net commission and assuming 60% confiscated because of poor paper work? Its 8000/40 = 200 policies or 6.67 policies in a day!
The mathematics is clear. Keep your Aviva SAF Group insurance - despite it not guaranteed renewable - and stay away from the 14,999 financial advisers!
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