People want to tighten their belt especially in this time of recessionary environment. They save like crazy and try to spend only on the necessity. If it is possible, get rid of insurance policies – which I agree especially those useless one. But how about those insurance policies that are needed? Many people do not realize that they are spending too much in insurance.
I did a brief survey and here is what I found: For a whole life policy covering $150,000 death, TPD and critical illness for a new born baby and male and premium limited to 20 years, the cost of insurance ranges from $121.25 to $172.13 monthly. The difference between these two extreme is 42%! If the poor client is going to pay this extra 42% for another 20 years, guess who is the one getting rich? No prize for guessing, it will be the insurer (I think the adviser will get rich too but I’ve not checked the commission rate). I looked at the one that is the most expensive and I cannot find anything great about it that can justify its high cost. In fact, it has a serious flaw as compared to the cheapest one. Ironically, I feel most people actually would buy a similarly expensive plan like this very expensive policy. Why? Reasons are:
- People like to buy branded goods. So they think big and famous means good. I do not need to mention names and people already knew this is not so. Why would people like to buy a Rolex as compared to say a Citizen watch? Rolex equates with status although a citizen watch is good enough for a time function. So I really wonder is it necessary to “show-off” by buying an expensive/branded insurance policy? Has anyone actually boast and “show-off” that he has an expensive branded policy in a cocktail party? I know some people likes to show-off expensive cars, but an expensive insurance policy? Hello? Perhaps in Mars? Yes? No?
- Secondly, people buys insurance policy just to “help” a friend. But my question to that is this: Is this friend helping YOU as a client and himself as an ADVISER? If this “friend” is selling the most expensive plan to YOU requiring YOU to pay 42% extra for 20 years, is he your friend? I think he is your foe. What kind of friend is this? Some people say that the ADVISER is stuck with one company and hence he cannot sell other policies. My response to that is this: There is no reason for this adviser to be stuck with this company. He can become an insurance broker carrying many insurance companies’ products. Why is he not helping himself? There is a lot of advantage to become a broker– he can sell more by offering more choices to his clients and in turn earns even greater commissions. Isn’t it beneficial for himself and his clients? Obviously the ADVISER is not doing a proper financial planning for himself and his own family. Or perhaps he sees offering greater choice has nothing big deal.
- Thirdly, some people do not do a proper research and hence turns out to buy an expensive policy. I feel that there should be some minimum research. It is unnecessary to become expert in the field but at least some basic reading up is required. When buying a TV, there is no need to become a TV manufacturer to understand it in order to buy. Yet everybody would do some very basic research like – what are the features? Can it do some common basic functions? Is it compatible with the DVD player? What is the warranty period? Finally how much is it? I would get 2 or 3 quotes just to make sure and get really suspicious if am asked to pay 42% extra. But for insurance policy? Seem most people like to pay 42% extra for 20 years. Why? Maybe to help and stimulate the economy? Nice try.
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