Protection

The Case of Term vs Whole Life Insurance: Chapter 6


Article Author - Christopher Tan
By Christopher Tan
Jul 15, 2016

This article is part of The Case of Term vs Whole Life Insurance: A Comprehensive Consumer Guide e-book. The following chapters will be released shortly.

Click on the following links to read earlier chapters of the e-book: Prologue and Chapter 1, Chapter 2 & 3, Chapter 4 & Chapter 5.


Chapter 6 - The Story of Providend and The birth of DIYInsurance


At the age of 27 years old, I started my career in the financial services industry as an insurance adviser with a large insurer. I had wanted to be a financial adviser then. But there was no such “animal” back in the late 90s as not only it was a new idea, the Financial Advisers Act was not put in place. You either join the insurance companies, the banks or the stockbroking house to do something like that. Although I was promised that I will get a chance to do financial planning in the agency that I joined, I was never taught how to.

In 1999, I discovered by accident that there were good books on how to write a financial plan in NUS Hon Sui Sen Library. That was the beginning of my financial advisory career. But, regardless of how good a plan I wrote for clients, I only had one product to implement their plans - insurance. And I was using lots of whole life insurance.

You see, back in my agency days, no one really talk about term plans. In almost all of our trainings, we were taught how to sell whole life plans, endowments and investment-linked policies to clients. These were the plans that pay us well and also allow us to achieve the coveted Million Dollar Round Table (MDRT), Court of the Table (COT) and Top of the Table (TOT) award.

And in the 3 years I was with the insurance company, I did well. I was second top rookie adviser in my first year and by the time I reached my third year, I was top 25 in the company. Besides being financially well paid, every year, I get to go on 2-3 overseas incentive trips. Life was good.

Sometime in early 2000, I read an article on Business Times, written by Ms Genevieve Cua. She interviewed US financial planner Ms Suze Orman. In that article, it was reported that Ms Orman said something to the effect that “if you sell whole life plans to your clients, you are like serving them a plate of poison”. When I read that, I was of course fuming mad. I thought to myself back then: “how could she say such a thing?! This is not true!” I ignored what I read and continued selling whole life plans.

For the next 6 months, what Suze Orman said kept coming back into my mind and troubled me. And after doing enough research and realised what she said was in many ways true, I could not take it anymore. I decided that if I want to leave the insurance company, I better leave when I was still young, where the recurring insurance commissions is still small and when I still have the courage to do so.

At the peak of my insurance career, I left and subsequently set up Providend, Singapore’s first fee-only firm on 11th September 2001. You can read more about Providend’s early days here - Providend's History.

When Providend started, we wanted to build a company that represents “trust”. But how can we build trust? We decided that in order to do that, we must exist to give the most honest, independent and competent advice to our clients. So we structure the company to the best of our ability, to deliver honest, independent and competent advice.

To give the most honest advice, we decided to be the first fee-only firm in Singapore. What that means is that when clients take advice from us, they pay us a fee. And if they need to buy any financial products to execute their plan, we will help them buy these products but we will return 100% of the commissions back to them. Many people said to us that we need not do this. As long as we have honest advisers, we would be able to give honest advice. But our thought was that honest advisers is a given in this work that we do. If you are not honest, you should not even do this work. But, we still need to put in place a structure to minimise temptations and conflict of interest.

To give the most independent and competent advice, besides have enough breath of financial products to choose from, we basically breakdown the entire advisory process, to be carried out by different teams of people. Our client adviser from the advisory team, who are client facing provides general financial planning advice and risk coaching in investments. But they cannot recommend specific products. The specific products are recommended by a team of salary-based specialist who are not client facing. This not only ensure that the most competent people do what they are best at (client advisers perform general financial planning, risk coaching and relationship management, and specialist in their own expert domain such as insurance, investments etc recommend the specific strategy and products).

The investment portfolios are managed by a separate team of investment analysts reporting to a head of investments. This investment team further reports to an investment committee that are staffed by members outside of Providend. We do not believe that advisers who are good at relationship management, general financial planning can also be an expert in estate, insurance, investments etc. By structuring the process this way, we also ensure independence and minimise conflict of interest.

While we appreciated the Providend’s advisory model, we realised that most of the clients that came to us were the mass affluent clients whose financial situations were more complex and they required more in-depth planning. They also had the ability and was willing to pay us a fee. However, we were unable to reach out to the rest of the people whom genuinely need good advice, but were not able or unwilling to pay a fee. In truth, their financial needs are also a lot simpler, which do not require them to pay a fee for advice. This was when we decided to birth DIYInsurance in June 2014, to bridge this gap.

The idea of DIYInsurance was simple. We want to create a transparent platform where people with insurance needs can come to a safe environment, to get advice, without feeling pressured to buy and knowing that whatever they are getting is best for them, and not because we earn the most from it. We achieve this by:

  1. Openly stating that we advocate term insurance and not whole life insurance. By saying that we advocate term insurance, we are not saying that whole life insurance are of no use and we will not recommend it to clients. What we are saying is that for your higher priority needs, you only need term. Once you have taken care of your basic needs, including retirement planning, funding children’s tertiary education, and if you still have budget, you can take care of the lower priority insurance needs and use whole life plans if you want. Today at DIYInsurance, 1 out 4 policies that we recommend are whole life insurance. They are only sold to meet those unique needs that are usually not of top priority, and only after the higher priority needs are met.
  2. Putting up an engine to compare the premiums and features of different insurance companies that are on our platform. In this way, clients know which the cost-effective plans that are suitable for them are.
  3. Putting up educational materials and planning tools to empower clients to decide what they need and not what advisers want to sell them. And if they need advice, by
  4. Using salary-based advisers to advise clients, we minimise conflict of interest. On top of that, the advice is backed by nearly 20 years of experience from the founders
  5. Ensuring that there is absolutely no pressure selling. On average, clients only need to meet us once, for between 20 minutes to an hour, to apply for their insurance.
  6. Letting clients know all the various promotions from the insurance companies, so that clients get the best deal.
  7. Having a client service team to help clients with post-sales service such as claims.

On top of the above, we give a 50% rebate of salesperson’s commission (for as long as the insurance companies pay us) to reduce the cost of purchasing insurance.

But DIYInsurance is not about giving rebates. Our clients really come to us because they feel absolutely safe doing their insurance plans with us. Over the past 2 years, we have received so much encouragements and recognitions from clients. You can read them here: Customer Reviews

And because we embrace honour in our work, and because the practices we put in place exhibit our value of honouring clients and our staff, Honour Singapore recently produced a short video, in recognition of this. Watch it here.

It has been a long journey for Providend since 2001 and the road hasn’t been easy. In my near 20 years in this industry, I have realised that in order to do the right thing and to always put clients’ interest first, we must be prepared to make sacrifices. One such sacrifice is in the form of receiving flak from advisers, for not all of them agree with our stand. But we believe that this sacrifice is worth it, because we can answer to ourselves and above all, our clients. This is our calling, our purpose.

I salute all Providend and DIYInsurance staff for sharing our dream and walking this journey with us. I thank all our clients for being part of this adventure in making honest advice work.



Epilogue


This e-book started with Mr. Marq Siew, an adviser with many years of experience in the insurance industry, stating his many points of contention against our stand on term insurance. It is only appropriate that we end the book by answering Marq’s questions/points.


Marq Siew’s Points of Contention


  1. Marq feels that in advocating term insurance, we are not being customer-oriented but product-oriented
  2. That we are obsessed with arguing which instrument is better. He feels that all products are created to meet a certain need. If DIYInsurance advocates the use of Term insurance against Whole Life plans, we are advocating a one-sized fit all approach. We should instead customise each plan to customers’ needs
  3. That regulators have indicated before that they do not wish to see product-type pushing (Term policies are a product-type), by expressing that Incentives should not be given for any particular product-type. As such, by advocating Term insurance, What DIYInsurance is doing is akin to product pushing.
  4. That If Term insurance is so good, like what DIYInsurance is saying, there should be a massive landslide of market share to Term plans. But this is currently not the case. Marq is alluding that good products will lead to huge market share or simply put, a huge market share means that the product must be good.
  5. That Providend/DIYInsurance is saying that Term insurance commission rates are lower than Whole Life commission rate. And as such, we should publish a table on commission rates to the public.
  6. That DIYInsurance is insinuating Singapore financial planners/consultants/advisers because we allude to them getting lower commission rates for recommending Term policies and so most prefer to recommend Whole Life plans.
  7. That DIYInsurance should make a public apology for pt 6.
  8. That we assumed that all Singaporeans do NOT require coverage after exactly aged 65 years old.

Our Reply


Dear Marq

By now, I hope you have realised that in advocating term, we have never been more customer-centric rather than product-centric. Our decision to make this stand was not done without research, analysis and deliberation. And at the centre of our process is this: Our clients.

Inside and outside of our boardroom, we constantly asked ourselves this one question: What is best for our clients? And we are convinced, that after considering all that we have written above, that term insurance is the most suitable insurance for a large majority of people in wanting to protect their higher priority needs. Although our philosophy of insurance is that it is primarily for protection and not for saving or investing, this is not the same as saying we advocate “buying term and investing the rest”. We don’t buy term to invest the rest. We buy term insurance because it is the most affordable way to be fully protected.

There are situations where using whole life insurance is appropriate. But those situations are unique or should only be done after taking care of our higher priority financial planning needs, which include retirement planning and accumulating towards our children’s tertiary education.

Many including you have said thatwe are advocating a one-sized fit all approach, and that we should understand the needs of the individual client before prescription. I think you may have misunderstood us and also the term “term insurance". Term insurance is not a product. Term insurance is a class of products that are suitable when our need for coverage is temporary and if we want an affordable way to fully meet our huge coverage needs.

At DIYInsurance, we take time to understand every client’s need. This is done at the need analysis stage, which may result in clients wanting different amount of coverage, to cover different risks and for different number of years. But as we have painstakingly explained, these higher priority needs are almost mostly temporary in nature and therefore, term insurance is most suitable and cost effective.

As an adviser who has been in the insurance industry for many years, you will also know that different insurers price their term insurance differently for different age range and gender. So once we know the needs of the clients, DIYInsurance will then choose the most appropriate term insurance from different insurers for clients. I think after doing all these, one cannot say that we are using a one-sized fit all approach, even worse, call us a product pusher. (Product pushing happens when without understanding the needs of the client, a product is being sold.)

Dear Marq, unfortunately, we cannot agree with you that good products will lead to huge market share or simply put, a huge market share means that the product must be good. There are many contributing factors to market share, and the quality of the product is but only one of them. And even if we accept your thesis, you will notice in table 5.1 that over the years, the proportion of sales for whole life plans are decreasing while term plans have been increasing. Does this then suggest that whole life plans are no good and term plans are better? We do not think so. As we have explained in Chapter 5, we believe that this is because consumers and advisers alike are beginning to understand the use of term plans better and also insurers are coming out with good and competitively priced term plans. It is not what the market share was that is important but where it is going.

We also think that you have misunderstood that we assumed that all Singaporeans do not require coverage after exactly aged 65 years old. Nowhere in our publications have we said that. In various publications including our earlier articles, we used age 55, 65 and even age 70 as an age for illustrative purposes. But we do maintain our stand that for our higher priority needs, our need for insurance coverage is temporary. One day, whether aged 55, 65 or 70, we do not need insurance coverage anymore.

With regard to commission, we would also want to clarify that we have never said that commission rates for selling a whole life plan is better than term plans. We have always said that commissions are higher when whole life plans are sold. This is because, for the same coverage need, the premiums for whole life plans are many times higher than term plans. You have requested us to publish a table of commission rates for whole life and terms plans to the public. Unfortunately, we cannot accede to your request as our agreements with the various insurers do not allow us to do so. However, what we can do is to publish Appendix 1 to 5, where we put up the different premiums and agent’s first year commission from different companies (keeping names anonymous).

We can clearly see that though the commission rates for term and whole life plans do not differ much, selling a whole life plan to meet coverage need of our clients cost the client a lot more, than if he had bought a term plan. Higher premium translate to higher commission.

Marq, it was not my intention to insinuate Singapore financial planners/consultants/advisers. I have stated in a few of my articles and in this book, that there are good advisers who will do the right thing, even if it means earning a lower commission for themselves. I salute all these advisers. However, it is true that the commission structure can cause one to be tempted to sell aproduct that is of a higher compensation. We need to be honest to accept this as a fact. But I agree with you that in those articles that I wrote in my earlier years, my tone of voice could have been better. Although my principle was right and I don’t apologise for making this stand on term insurance, my posture could have been much better. For that, I sincerely apologise to every single adviser in Singapore which I may have offended. I hope all of you can forgive me.

Thank you Marq for reading this book. I hope many advisers and you have enjoyed and benefited from reading this as much as I have enjoyed writing it.



Appendices

Appendix 1: Possible insurance plans for Tony to cover $500,000 death/TPD

Term Plans
(Term till age 70) Premium (p.a.)

Whole Life Hybrid Plans
(Premium p.a.)

Traditional Whole Life Plans
Premium (p.a.)

Company A

$2,345

$5,761

Not Available

Company B

$1,922

$7,410

$15,670

Company C

$2,310

$5,849

$14,581

Company D

$2,131

$8,739

Not available

Company E

$2,178

Not available

$14,320

Table A: Various insurance options for Tony
*Not Available: Insurers either do not have the product or do not have products that have the same 25-year limited premium term.
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.


Term Plans

Whole Life Hybrid

Traditional Whole Life Plans

Company A

$1,351

$2,938

Not applicable

Company B

$748

$3,335

$7,052

Company C

$845

$2,281

$5,687

Company D

$852

$3,495

Not applicable

Company E

$1,089

Not applicable

$5,728

Table B: Estimated agent’s first year’s commission for selling the above policies in table A

Appendix 2: Possible insurance plans for Peter to cover $1,000,000 death/TPD

Term Plans
(Term till age 70) Premium (p.a.)

Whole Life Hybrid Plans
(Premium p.a.)

Traditional Whole Life Plans
Premium (p.a.)

Company A

$3,203

$11,189

Not Available

Company B

$2,913

$14,720

$31,340

Company C

$3,391

$11,253

$29,162

Company D

$4,622

$17,472

Not Available

Company E

$3,261

Not Available

$28,640

Table A: Various insurance options for Peter
*Not Available: Insurers either do not have the product or do not have products that has limited 25 years premium term
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.


Term Plans

Whole Life Hybrid Plans

Traditional Whole Life Plans

Company A

$1,845

$5,706

Not applicable

Company B

$1,133

$6,624

$14,103

Company C

$1,241

$4,388

$11,373

Company D

$1,849

$6,989

Not applicable

Company E

$1,631

Not applicable

$11,456

Table B: Estimated agent’s first year’s commission for selling the above policies in table 5.5

Appendix 3: Possible insurance plans for Tony to cover $130,000 for income replacement due to a critical illness and $50,000 for alternative medicine and care

Term Plan (till ALB 70) with $130,000

Whole Life
with $130,000

Whole Life Hybrid with $130,000

Whole Life with $50,000

Whole Life Hybrid with $50,000

Whole Life
with $180,000

Whole Life Hybrid with $180,000

Company A

$1,707

Not Available

Not Available

Not Available

Not Available

Not Available

Not Available

Company B

$1,699

Not Available

$2,843

$2,166

Not Available

$8,098

$3,061

Company C

$1,700

$4,884

$2,484

$1,986

Not Available

$6,763

$3,249

Company D

Not Available

Not Available

$2,269

Not Available

Not Available

Not Available

$3,143

Company E

Not Available

$4,650

Not Available

$1,814

Not Available

$6,439

Not Available

Table A: Various options for Tony to cover $130,000 income replacement for critical illness and $50,000 for alternative medicine and care
*Not Available: Insurers either do not have the product or do not have products that has limited 25 years premium term
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.


Term Plan (till ALB 70) with $130,000

Whole Life
with $130,000

Whole Life Hybrid with $130,000

Whole Life with $50,000

Whole Life Hybrid with $50,000

Whole Life with $180,000

Whole Life Hybrid with $180,000

Company A

$983

Not Available

Not Available

Not applicable

Not applicable

Not applicable

Not applicable

Company B

$637

Not Available

$1,279

$974

Not applicable

$3,644

$1,652

Company C

$612

$1,905

$969

$774

Not applicable

$2,637

$1,267

Company D

Not applicable

Not Available

$907

Not applicable

Not applicable

Not applicable

$1,257

Company E

Not applicable

$1,860

Not Available

$726

Not applicable

$2,575

Not applicable

Table B: Estimated agent’s first year’s commission for selling the above policies in table A

Appendix 4: Possible insurance plans for Peter to cover $360,000 for income replacement due to a critical illness and $50,000 for alternative medicine and care

Term Plan (till ALB 70) with
$360,000

Whole Life
with $360,000

Whole Life Hybrid with $360,000

Whole Life
With $50,000

Whole Life Hybrid with
$50,000

Whole Life Plan with
$410,000

Whole Life Hybrid Plan with
$410,000

Company A

$4,364

Not Available

Not Available

Not Available

Not Available

Not Available

$6,782

Company B

$3,810

Not Available

$7,728

$2,166

Not Available

$17,142

$7,834

Company C

$4,662

$13,010

$6,242

$1,986

Not Available

$14,817

$7,110

Company D

Not Available

Not Available

$6,293

Not Available

Not Available

Not Available

$7,167

Company E

Not Available

$12,877

Not Available

$1,814

Not Available

$14,666

Not Available

Table A: Various options for Peter to cover $360,000 income replacement for critical illness and $50,000 for alternative medicine and care
*Not Available: Insurers either do not have the product or do not have products that has limited 25 years premium term
** The premium for the whole life and whole life hybrid is over a limited period of 25 years.


Term Plan (till ALB 70) with
$360,000

Whole Life
with $360,000

Whole Life Hybrid with $360,000

Whole Life
With $50,000

Whole Life Hybrid with
$50,000

Whole Life Plan with
$410,000

Whole Life Hybrid Plan with
$410,000

Company A

$2,514

Not Available

Not Available

Not applicable

Not applicable

Not applicable

$3,459

Company B

$1,429

Not Available

$3,478

$974

Not applicable

$7,714

$3,525

Company C

$1,678

$5,074

$2,434

$774

Not applicable

$5,779

$2,773

Company D

Not applicable

Not Available

$2,517

Not applicable

Not applicable

Not applicable

$2,867

Company E

Not applicable

$5,151

Not Available

$726

Not applicable

$5,866

Not applicable

Table B: Estimated agent’s first year’s commission for selling the above policies in table A

Appendix 5 - How much cover you can get from whole life and whole life hybrid plans with the same premium you pay to get term plans

Premium for $500,000 term plan till age 70

Sum Assured of Whole Life Plan for the same premium of $500,000 Term

Sum Assured of Whole Life Hybrid Plan for the same premium of $500,000 Term

Company A

$2,345

Not Available

$195,000

Company B

$1,922

$59,000

$125,000

Company C

$2,310

$71,000

$186,000

Company D

$2,131

Not Available

$122,500

Company E

$2,178

$73,000

Not Available

Table A: How much cover you can get from whole life and whole life hybrid with the same premium to get $500,000 term plan

Agent’s First Year Commission (Term Plan)

Agent’s First Year Commission (Whole Life Plan)

Agent’s First Year Commission (Whole Life Hybrid Plan)

Company A

$1,351

Not applicable

$1,196

Company B

$748

$865

$865

Company C

$845

$900

$900

Company D

$852

Not applicable

$852

Company E

$1,089

$871

Not applicable

Table B: Estimated agent’s first year’s commission for selling the above policies in table C

Premium for $1,000,000 term plan till age 70

Sum Assured of Whole Life Plan for the same premium of $1,000,000 Term

Sum Assured of Whole Life Hybrid Plan for the same premium of $1,000,000 Term

Company A

$3,203

Not Available

$264,000

Company B

$2,913

$89,000

$190,000

Company C

$3,391

$112,000

$274,305

Company D

$4,622

Not Available

$264,514

Company E

$3,261

$112,000

$186,000

Table C: How much cover you can get from whole life and whole life hybrid with the same premium to get $1,000,000 term plan
*Not Available: Insurers either do not have the product or do not have products that has limited 25 years premium term
**The premium for the whole life and whole life hybrid is over a limited period of 25 years.


Agent’s First Year Commission (Term Plan)

Agent’s First Year Commission (Whole Life Plan)

Agent’s First Year Commission (Whole Life Hybrid Plan)

Company A

$1,845

Not applicable

$1,652

Company B

$2,267

$1,315

$1,310

Company C

$1,241

$1,323

$1,323

Company D

$1,849

Not applicable

$1,849

Company E

$1,631

$1,305

$1,298

Table D: Estimated agent’s first year’s commission for selling the above policies in table C

Appendix 6 - Interesting Facebook Threads About Our Stand on Term Insurance

Marq Siew

I would like to enquire as a member of the public:

(1) Why are AIA's Term rates generally absent?

(2) Can DIYinsurance confirm that these 2 tables do not have any error? It seems that AXA has the cheapest Term rates across Almost all age bands.

(3) Can DIYinsurance give the public, an explanation of the recent sudden shift, in terms of how old we should be covered for Death Cover?

Just in June 2016, your company was still recommending Death cover till the age of 65. In July 2016, you now recommend it till 70 years old.

I certainly hope it's not because most insurers now offer Disability protection till 70 years of age, which caused DIYinsurance to shift it's recommendation, which is noticeable despite the slick footwork.

Should we pity consumers who believed in DIYinsurance's past recommendation to buy Term till the age of 55, based on what Christopher said in his 2005 article? What about the clueless public who later believed DIYinsurance's recommendation to buy Term till 65, only now to suddenly hear DIYinsurance shift the goal post again to 70 years old? By the time DIYinsurance shifts the recommended Death cover age backwards again, the overall DIYinsurance recommendation will look like a Whole Life coverage.

The innocent public which followed such recommendation, are stuck with an old Term policy, with a coverage duration which cannot be changed.

Of course, there is a possible Magical solution: these hapless Customers can replace their older Term, re-buy a brand new Term Policy at an older age (sometimes cheaper, sometimes more expensive), to fit to the new recommended cover till 70. No clawback of Commissions due to Term-to Term Replacement because there is no Cash Value involved, so the company which does this, can earn fresh Commissions all over again!

Diyinsurance.com.sg

Dear Marq Siew, thank you for your comments and questions

In an earlier thread that you posted on 21 June 2016 (under the June's Singapore Term Life Comparison Table’s post), you have requested for us to also provide Tokio Marine (TM), AIA as well as Great Eastern Life’s (GE) rates, Roy Yong, an agent from GE has also requested the same. We accepted your request to do so. In including TM term plans, you might know as an adviser, that the shortest term we can buy from TM is a term till aged 70. TM does not have term plans that covers till aged 65. That explains why we have changed the coverage age till aged 70.

Marq, once again, you might have misunderstood our CEO’s article dated 16th August 2005 which appeared on Today Newspaper. I embed the link here http://www.providend.com/think-twice-before-you-pay-your-next-insurance-premiums/ . In the article, Mr. Christopher Tan said “To illustrate, if you are 35 years old man and need to provide your family with a monthly income of $3,000 for 20 years in the event of your unfortunate demise, you will need about $600,000 cover. If you intend to retire and have no dependant at age 55...” Mr. Tan did not advocate that one should buy coverage till aged 55. He was simply illustrating how much coverage one needs and the premium cost if he wants coverage till aged 55. In the same vein, by putting up a comparison table that shows term plan coverage till aged 65, we are not advocating that one should only buy a term plan till aged 65, but simply to use a reasonable term for comparison purpose. We appreciate your concern that the public might not know how long they would need coverage. But that is what we as advisers in DIYInsurance are here for, to guide them and provide them with the most honest, independent and competent advice. We also believe that our clients who come to DIYInsurance to get insurance advice are people who are wise, and as such will not misread our articles.

We are honestly shocked to hear of the suggested solution that advisers can ask clients to keep changing their term plans so as to earn new commissions. We do hope that the suggested solution is not a common practice in the industry. Providend and DIYInsurance is a fiduciary. We owe our clients a duty of care. Such so called “solutions" not only have never crossed our minds, we have in fact created a structure to minimise any conflict of interest. You might be pleased to know that at DIYInsurance, all recommendations are done by a specialised team of licensed advisers that are salaried-based and not compensated by commissions. They do not get anything out from churning. On top of that, there are higher level checks by an executive director of the firm before each insurance application is processed. This is how serious we take our advice to our clients. To top it all, in all of our 13 years of operation as a firm, Providend has zero compliance breaches of such nature.

Finally, our comparison table is accurate as at 1 July 2016 and so AXA rates for the specified parameters are accurate. AIA rates are missing for most age band because AIA Secure Term Plus (II) (AIA’s term plan) limit coverage to 5, 10, 20 or 30 years.


On another post,

Tan Songkai

Sounds like a advertisement for AXA though.

Fyi, cost of insurance to be paid to AXA highest in Singapore. 9%

杜奇成

SongKai - any supporting materials to prove so?

Tan Songkai

Meet me in real life. I'll show you :)

Diyinsurance.com.sg

Dear Tan Songkai, thank you for your comment. One of the factors that affect premium rates is mortality cost aka as the cost of insurance. The higher the mortality cost, the higher the insurance premium. Our comparison table showed AXA to have the lowest premium for this scenario. Would appreciate if you can elaborate what you mean when you say AXA has the highest cost of insurance, especially so when premium is lowest. Thank you.

Tan Songkai

As I said, meet me in real life and I'll.show you the evidence :)

Tan Songkai

Premiums are shown but rate of deductions are not.

Diyinsurance.com.sg

Dear Tan Songkai, thank you for your reply. As much as we believe you might have the evidence, that was not our question. We are just asking what you mean when you say AXA has the highest cost of insurance when premium is the lowest as it is technically unsound. Thank you.

Tan Songkai

LOL. are you technically unsound?

Premiums are what the client pay. However, every insurance plan has a cost that will be paid to the company. For example, if a client wants a ilp that cost 100$ a month. Will 100$ be actually used for investment? Yes and no.

Premiums are what the client pay. However, every insurance plan has a cost that will be paid to the company. For example, if a client wants a ilp that cost 100$ a month. Will 100$ be actually used for investment? Yes and no.

Front end loading, the company deduct 5$ and invest the remaining 95 into the invest ment fund of client choice.

Back end loading, 100$ is invest first. At the end of x years, 5% of the total value is deducted to pay the company.

AXA deduct the highest amount to pay the company salary and operation cost.

This is what I am saying.

Diyinsurance.com.sg

Thank you Tan Songkai for your reply. But amount deducted to pay front end load, back end load, company salary and operating costs are not defined as cost of insurance. They are distribution cost and coy expenses. Cost of insurance is mortality rates based on life expectancy. So your definition may be incorrect.

Tan Songkai

Lol.sorry but I do.Not memorize definitions. All I know is loading affects how much clients get from company only. And axa has the highest in this aspect. This means although on paper axa win but factoring this aspect axa will lose :)

Diyinsurance.com.sg

Dear Tan Songkai, thank you for your reply. We accept your apologies for not knowing the meaning of the term "cost of insurance". But this is a term plan comparison that you are commenting on. There is no return of cash or investment value to clients.

杜奇成

Hence Tan Songkai - sound so confident earlier .... lol but well you learn something new. :)


On another thread,

Marq Siew

With reference to DIYinsurance's reply to Felix Lam, DIYinsurance has valid and invalid points.

1st, Top in the class does not equal to good enough or sufficient. If a child scores 38 marks out of 100, and the rest of the classmates all score lower, the child is Top, but fails the examination.

2nd, the Low cost of the ETF cannot be immediately interpreted to translate into higher returns. If it does, why do the high nett worth individuals not buy just ETFs, but buy investments based on sectors and countries? Because the rich and well educated are not informed of the existence of ETFs? ETFs may give better returns. May in caps. Cheapest may not equate to being the best when it comes to investing. Do any of us even buy the cheapest toothpaste in a supermarket? Do we buy everything we use, based on the cheapest product in a supermarket, regardless of the reliability, benefits and ingredients? Of course I still advocate that for plain simple Term coverage, cheaper is always what we are looking for.

3rd, it is true that buying a Term policy may be better for investment savvy consumers. I seldom see investment savvy consumers who buy Term and invest the rest, buy ETFs. They often invest in other instruments. A Term and ETF mix doesn't seem to be seen often.

4th, if the individuals in a particular society are not financially educated enough yet, doesn't it make strategic sense to focus on the education part first, before we push them to do buy Term and invest the rest (because they don't know what they are doing also) now? Can you force a 10 year old child to take a degree in Quantum Physics immediately, skipping all the basics of physics supposed to learnt along the way, just because "eventually you will have to learn it anyway"? There is a time and process for everything.

I acknowledge that DIYinsurance has a noble mission, but I suspect that DIYinsurance should focus on investment education, instead of recommending that everyone buy Term insurance immediately. That would be even more noble, but from a business point of view, it may not be what DIYinsurance wants to do.

Diyinsurance.com.sg

Dear Marq Siew, thank you for sharing your thoughts. Please allow us to clarify your misunderstanding

  1. When we put up the link to show that Singapore is ranked top in financial literacy in Asia Pacific, we did not say it is good enough, rather, if you have read our post and the article in full, you would realised that we are simply saying that Singapore's financial literacy level has improved.
  2. When we shared with Felix Lam on how we can invest using low cost ETFs, again, if you have read what we commented, we did not say that it is the best, but rather, it was to answer to Felix's point on advisory and trailer fees. We are simply saying that ETFs have no trailer fees and have low advisory fees. We also did not say that lower cost translates to higher returns. We simply said that higher cost (in terms of higher expense ratio) eats into returns. Risk and returns go hand in hand. If one wants a a possible higher return, they have to take more risk. This is how markets work.
  3. You mention that high net worth do not just buy ETFs but also invest in sectors and countries. Once again, if you have read our comment, we are not saying one should only buy ETFs, but rather we are simply giving Felix an example of an investment option that is without trailer fees. But really, whether one is high net worth or not, it should not be a stopper to investing into other investment options. You might want to know that you can also invest into sectors and countries using ETFs. ETFs do not restrict your geographical exposure. It is basically a way of investing into a basket of securities by tracking the index. They do not do security selection to beat the market. Therein lies the reason why it is low cost.
  4. Unfortunately, We have to disagree with your point that buying a Term policy may be better for investment savvy consumers. Once again, we reiterate that buying term is not so that one can invest the rest. Buying term is the most affordable way to be sufficiently covered. Whether you are investment savvy or not, there is a need to be sufficiently covered. Our point in our reply to Felix is also that if consumers are not investment savvy, it is our job as advisers to help them.
  5. We quote your 4th point: "if the individuals in a particular society are not financially educated enough yet, doesn't it make strategic sense to focus on the education part first, before we push them to do buy Term and invest the rest (because they don't know what they are doing also) now" - Firstly, we are aligned to your point that we should educate. This is why we have been writing such articles since 2003. However, we do not agree with you that it makes more strategic sense to focus on the education part first, before we get people to buy term and invest the rest. Once again, if you have read our reply to Felix and the above comment, we are not advocating buying term and investing the rest. Secondly, you seems to suggest that before individuals are financially educated, they should not buy term. The question is, how do we measure if individuals in a society is ready? As you have alluded in your first point, that even when we are top in financial literacy in Asia Pacific, it is not good enough. So the question is: when will our consumers be "good enough" to buy term insurance? When we started out writing in 2003, advisers have said that consumers are not ready. 13 years later, when we posted the same articles that were written more than a decade ago, advisers are still saying that our consumers are not ready. Our belief has always been: consumers will be ready when we as advisers are ready. Thirdly, at Providend and DIYInsurance, beyond being concerned with whether it makes strategic sense for us. We are also concern with doing what make sense for our clients. Beyond a business enterprise, Providend and DIYInsurance are firstly fiduciaries.
  6. We are humbled that you acknowledge that DIYInsurance has a noble mission. We have never seen ourselves that way. We only want to do what is best for our clients. If you have visited our web portal, you will notice that we carry whole life plans as well. From a business point of view, it doesn't make a difference whether clients buy a whole life or Term from us.

    Marg, you might want to post your reply with Felix's thread so that readers watching this space can follow our points easier. Thank you once again for watching this space and sharing your thoughts. Have a good weekend!



DIYInsurance (Do It Your-way Insurance) is Singapore's First Life Insurance Comparison Web Portal started in June 2014 by Providend Ltd to empower people to make informed decisions about their own insurance purchases. In addition to ongoing promotions, we rebate 50% of the agent’s commissions back to our clients so that they enjoy greater cost savings.

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