Insurance
Insufficient savings? No wonder with poor insurance returns
By Tan Kin Lian  •  August 13, 2009
[caption id="attachment_2949" align="alignright" width="150" caption="Photo by Nieve44/La Lu"]Photo by Nieve44/La Lu[/caption] Published in Forum Page, Straits Times on Aug 10, 2009 I AGREE with the views expressed by Mr Larry Haverkamp in his letter last Thursday, 'Policyholders underpaid?'. Many life insurance policies taken today require more than 15 years to 'break even'. This is the point where the cash value of the policy is more than the premiums that were paid over the years. During this period, the insurance company must have earned more than 40 per cent on the premiums that have been invested. As an actuary, I know that the real cost of providing life insurance cover is about one-quarter of the gain. The remaining three-quarters are used to pay the agent's commission and expenses, or retained as orphaned money, as pointed out by Mr Haverkamp. If the orphaned money is distributed to the policyholder, as suggested by Mr Haverkamp, the return would at least have been slightly better. In recent years, consumers have been given a poor deal on their long-term savings in life insurance policies. A careful study of the Benefit Illustration will probably bring out this point. But the Benefit Illustration is difficult for consumers to understand and needs to be explained by an insurance adviser, who tends to skim over the negative points. Read more...
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By Tan Kin Lian
Mr Tan Kin Lian (fomer NTUC Income CEO) started his insurance career in 1966 in a local life insurance company. He has also worked in various positions as a computer programmer, organisation and methods officer and consulting actuary. Mr Tan writes daily in his blog. The information in his blog is transparent and has an open approach.
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