Simplifying A Complicated Product
Most likely if you are reading this article, it would be one of the following scenarios:
- Your financial planner friend asked you out for a chat and you are nervous he/she may oversell you
- Shit hit the fan for one of your family or close friend, and you get nervous that health care bills in Singapore are so expensive
- You just started working and feel that you should start looking at basic coverage in one way or another
Remember, this simple Venn diagram illustration holds true. In essence, Insurance is a mix of the right reasons, lowest costs and finally sufficient coverage.
If you are still keen to learn more about what are the true essential products you should consider, read this article just published recently.
Q1: Should I get an agent or Do-It-Yourself (DIY)?
This is entirely up to you. The same analogy follows:
- Pharmacy: If you already know what you want (e.g buying Panadol, flu medicine), you don’t pay consultation fees
- Doctor Clinic: If you have some complicated existing plans or complications, go to the doctor and pay consultation fees on top of the medicine cost
- In the event you are ‘sick’ you would go to a doctor you know or recommended by your friends or family
Q2: Should I buy all from one agency or pick and choose from various?
Usually, the agencies focus on different policy types and may or may not be the best price point for various types of policies.
- However, if you get the ESSENTIAL (eg. a whole life or term life with Agency X), your RIDER (eg. Critical Illness or Health) may be cheaper as a top-up, versus individually purchasing the different plans from different agencies.
- Lastly, there is a big plus if you stick to one agency – Your Agent (point of contact). That being said, personally my family has seen a ton of agents leave the industry just after 5-10 years (innately these people are very driven to succeed, so by being an agent it may not be a long term career path) What happens then is that you get assigned another agent who usually does not do follow up meeting and reviews as you have fallen off the ‘sales funnel’ in that sense.
Disclaimer: There are of course many agents who stay in the scene for a long time and kudos to them on that! Try not to buy from an MRT roadshow where they shove power banks into your hand and tell you it’s free. (LOL)
Q3: My agent is selling me an Investment Linked Product, does that mean he/she thinks I’m stupid?
Most likely he/she thinks you are lazy (and not have time to do your own investment) rather than stupid. To be honest, the same saying goes… you would want one financial product to do one thing well, rather than a jack-of-all-trades. Until a major technology change, there will remain a ton of middle-men: which thus drives up management fees, costs etc.
A definition: In ILPs, Your premiums are used to pay for units in investment–linked sub-fund(s) of your choice. Some of the units you buy are then sold to pay for insurance and other charges, while the rest remain invested.
- Very often ILPs incur not only costs, but it becomes rather tricky at a later stage in life. You can head over to this post here in our Community where some users discussed the realities of the rising cost of insurance in the ILP eating up the investment value at a later stage.
- Also, you can refer to this user’s blog where he/she labeled it NEVER EVER BUY AN ILP. In summary, he/she only had a return of 0.35% which is way below inflation at 2%. (in effect you lose money).
- One of our big community contributor, Alan, actually discussed the interesting trend of underinsuring because they mix insurance with investment (aka whole life), endowments and ILPs. These investment products give mediocre insurance coverage.
- Hence, some agents pounce on this point to get people to buy irrelevant policies, without the real proper coverage.
Fun fact: ILPs became popular in the 2000s where the term insurance was not sexy enough, agencies thus rebranded it to include investment components with coverage… there you go. ILP! It was targeting lazy people who didn’t want to look at growing their own money in their own ways (but most likely if you are reading this you should already be quite savvy, well done!)
Q4: My agent is selling me a whole life insurance product, does he/she think I’m stupid?
Here’s the honest truth, most agents get the most commission based on selling the whole life policy (because it is usually the most expensive at premiums over $3-4k per year)
- Most likely, your agent is looking at your situation and if you have the buying power, it usually is the most straightforward one to sell for a common person on the street, as it is an ESSENTIAL and you can add RIDERS (for Health and CI) to it.
- However, if you are more aware and savvy you would consider TERM LIFE instead. Either covering to 65 or 99 years old.
- And invest the rest of the money you saved for opting for a pure protection (no cash value) scheme instead. This is where on HardWareZone and even our community, you will find people advocating – BTIR (Buy Term, Invest the Rest)!
Important Disclaimer: That being said, this is usually a more tricky topic where you may be keen to sit down with an advisor to really iron out the key reasons why they are pushing you for a whole life. Especially if you have kids, or have little knowledge to invest the rest of money saved if you opt for a Term life. Remember, right reasons, lower cost and sufficient coverage.
Have any more burning questions?
Please feel free to join our community and ask away! There are a ton of financial savvy Singaporeans and people just like you learning along the way Comment below also if you have quick questions you want to be answered. Cheers!