I was handling a financial planning case. My client borrowed a home loan from a bank. One of the condition set by the bank is that the borrower must buy a mortgage insurance from the bank. The bank also offers 15% discount on the insurance premium to make the client happy.
I checked the benefit illustration quoted by the bank and it was underwritten by Insurer X. I am able to quote mortgage insurance from X too. However, I noticed that the name of the mortgage insurance is different from mine. When I generated the quote from my end, I found that the premium by the bank is 15% more expensive than mine! Some more these are underwritten by the same insurer X! My client was very angry upon knowing this. He called the bank for clarification. But the bank will not sell the product I quote despite the bank having a distribution agreement with the same insurer X. The bank insist that he must buy this and only this product. My client, in his own words, say that it was like "cheating"!
I decided to just randomly pick another insurer to check what is the rate like. So I used cheapo NTUC Income's mortgage insurance and shocked to find out that NTUC Income's premium is nearly 50% cheaper!
Here are some lessons:
- If you want to achieve financial independence, you must understand that are many others who will prevent you from doing so. Having a product mark-up by 15% only to say it will be discounted by 15% is no discount at all. Sometimes upon purchase of a product, you get a free gift. This is similar to the discount problem. They mark-up your purchase price in order to give you that free gift. So actually the free-gift was purchased by you - it was never a free gift.
- If you are not careful, you could end up buying 50% more expensive although it was "discounted" already. This applies to insurance and as well as to anything that involves money.
So take care and don't get cheated!
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