My dad bought for me my first life insurance policy when I was just 18 years old. When I started life as a working adult, of course, it was only right that I took on the responsibility of paying the quarterly premium. It costs me slightly more than $1,000 a year for what I now know is a miserable $50,000 sum assured on my life plus coverage for critical illnesses till age 50.
My dad bought the policy for me from a friend who said that he should get a policy for his teenage son because because it was cheaper to buy whole life policies at a younger age. This, I know now, is quite a standard sales pitch. The fact that his friend was a high achiever (ahem, made a lot of money) who led a team of agents meant that he must be dishing out advice that was right for us.
If I had known the stuff I know today, I would have stopped my dad from buying that proposed insurance product for me. $1,000 a year was a lot of money almost 30 years ago. I know that my dad bought the policy for me because he loved me but, really, all my dad had to get for me was Hospitalisation and Surgical (H&S) insurance in case I was hospitalised.
Anyway, I am glad to say that things have changed over the years and for the better too. Matters regarding personal finance which were once regarded as esoteric have become clearer as the internet removed barriers, making information readily available to the general public. Many who are in the know willingly share their knowledge and experience in cyberspace. This is a good thing because, till today, I still hear horror stories from people regarding insurance agents.
To be fair, there are good insurance agents out there who are ethical and genuinely care about their clients' welfare. Hard to find but not impossible. If we have to rely on someone, make sure that someone is trustworthy. This, of course, requires us to take a leap of faith.
So, the best thing to do is still to be educated. With education, we will know very clearly what are the options available to us and which options will best serve our needs at different stages of our lives. Then, the next thing to do is to go online and buy the insurance products we need at lower prices. What? Is this possible? Sounds too good to be true?
When I read about DIYInsurance, I thought that this service should have been available sooner. They aim to educate the public, helping them make better choices and save money in the process. What's there not to like?
The good people at DIYInsurance start by asking us to ask ourselves 6 questions:
6 questions you MUST ask yourself about
your insurance.
1. Did you purchase Term insurance
instead of Whole-life insurance?
The
only way to be sufficiently covered by insurance is to purchase Term insurance.
Term insurance is a low-cost insurance in which you only pay
for the amount of coverage you require, providing maximum protection at a minimum
cost. Most of us will require at least $500,000 and up to $1million when we
have a family with kids.
Purchasing
term insurance means we are able to sufficiently provide for our dependents livelihood
on our unfortunate demise. Not having sufficient coverage means our dependents
may have trouble paying off our housing loan, education fees and to maintain
their lifestyle. Having $1million coverage would cost less than $200 per month
with term insurance. Find out how much life insurance coverage you need here. Compare term insurance
products from different insurers here.
2. What is break-even point?
The
“Break-even point” is widely referred to in Whole Life and Endowment Insurance
(Savings) plans as a point of time in future (Eg. 20 years) when the:
Total
amount of premiums paid = Cash value which can be obtained if the policy is
surrendered.
While
this may seem that we are getting “free” insurance coverage at the break-even
point which could be in 20 years time, it is vital to note that the same amount
of money now will differ significantly in value in 20 years due to inflation.
Which means the value of us paying $10,000 in insurance coverage over 10 years
cannot be compared to the value of $10,000 which you only receive in 20 years
time. The value of $10,000 is much smaller in year 2035. Our chicken rice used
to cost $1 and the same plate may cost $6 in 20 years time. Hence, we have not
“broken-even” and are in fact paying for additional commissions, insurer’s
costs, insurance coverage and savings element from the loss in insurance
coverage in whole-life insurance plans.
3. Have you compared?
Comparing
allows you to purchase an insurance product at the best value. The cost savings
can be significantly higher. Insurance
web aggregators are popular and widely used in the United Kingdom and
Australia. Singapore’s 1st Life Insurance Comparison
Web Portal, DIYInsurance, allows you to
compare products for your Protection, Savings and Retirement needs from a wide
range of companies. Learn more about using web aggregators, there is a
complimentary event by DIYInsurance, Plan,
Compare & Save on Insurance: Using Web Aggregators on 25 April 2015. Register here.
4. Have you received commission rebates?
Insurance
agents are paid a handsome sum of commissions for insurance products they sell.
Up to 1.5 years of the cost (premiums) you pay may have contributed to the fees
of your insurance agent. This means you are insufficiently insured for the
large sums you may be paying. DIYInsurance rebates 30% of the agent’s commissions
back to you in cash, providing greater cost savings to you.
5. Do you know how is your insurance
agent paid?
Singapore’s
insurance industry is predominantly remunerated by commissions. Earning by
commissions for a living means your financial planner may have a greater
tendency to sell you products which provide them with higher commissions. This
means you may be exposed to products which you may not need and pay a higher
cost for them. A large part for what you are paying for is channeled to the
fees for your financial planner. Buying through DIYInsurance and for you to
receive 30% commission rebates means you will know how much DIYInsurance is
paid. DIYInsurance is
transparent with every product's commission’s structure so that you know
exactly what you are paying for.
6. Do you know how independent your
insurance agent is?
To
ensure there is no conflict of interest, it is important to ensure that your
financial planner is paid on a fixed fee and not by commissions based on their product
sales to you. All
staff from DIYInsurance are paid a fixed salary and do not participate in
sales-based compensation or incentives of any kind. Not being remunerated on a commission-basis means the staff at DIYInsurance are independent and are able to focus on doing their best to fulfill your needs.
There is no hard-selling and no over-selling.
Pay
less for your insurance today.
AK agrees.
Posts
Bloggy Award