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Whole Life Insurance

The Cons Of Having Many Of The Same Policy Types

This post is a response to one of the readers who has recently posted a comment on this post. Therefore I do hope that, with this post, I can help to bring out some pointers on the cons of having the many of the same insurance policy types…

When Are There Cons To Having Too Many Of The Same Policy Types?

The existence of cons depends on the terms and conditions stated by various insurance companies. So it is always better to check with the Financial Planners representing each of them. Things worth checking out:

#1 The Maximum Amount Of Insurance Coverage

Some insurance companies tie the maximum amount of insurance coverage against Death and/or Critical Illnesses against a factor of one’s annual income. For example, some insurance companies may set 16 – 20 times of annual income as the maximum sum assured for a whole life or term insurance. So if you are earning $100,000 per year, the maximum amount of insurance coverage that you can get may be set as $2,000,000. Any amount beyond that may mean that you are over-insured and insurance companies may just pay up to that limit.

If you are thinking that it’s unfair since you have the means to pay the premiums, but do think of people who may take advantage, e.g. a person deeply in debt and unemployed but has some savings to tide him over… he decides to get a $1 million dollars term insurance to cover himself and he decides to commit suicide after a year (of which the premium paid is just a few thousands). This will be unfair to the Insurance Company and to the pool of policyholders, do you agree?

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Do You Plan For Yourself With A Guide Book Or A Financial Planner?

If given a choice to properly plan for yourself, would you trust a Book that touches on the topic of what you need to know about Insurance Products or a Financial Planner who is not a newbie in the industry and qualified to give proper advice? Or would you have the combination of both?

And if you are amazed by what is being asked above, it’s not something new as there are people who plan for themselves with the help of a book. Though there’s nothing wrong with that because there are some good books that give you proper advice and even proper steps to work through your budget to sorting out your priorities to knowing what’s the order of importance in terms of getting an insurance plan.

The only concern that one may have is grabbing hold of a book that do not really guide the reader much but only list down on what’s the highly recommended insurance plan(s) in that author’s point of view and penalizes the other types. For example, I came across an author who only endorses Term Insurance, penalizes Whole Life Insurance and favors a particular type of Stock Investment in the book.

A Client Who Followed That Book And Did Changes

I have the real-case experience of having a Client who contacted me to request for a termination of the child’s Whole Life Insurance after it has been in-force for the past five years and another five more years to go before that client stops paying for that policy for the child – just because that client has read that book that says Whole Life Insurance has high expenses and fees built-in and the client is expected to face heavy losses should the policy continues…

I advised that should the client really decide to terminate that policy, the client would expect to suffer heavy surrendering charges which can amount to 60 – 70% of what was being paid till date. The client says it would be best to follow that book and confirmed that it would be best to terminate it and suffer the initial bit of losses.

Another colleague did helped to persuade that client but seemed like the client has really made up the mind and that policy was terminated on that date.

What Can You Learn From This Particular Incident

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Why Most Singaporeans Will Never Get Enough Insurance Coverage

If you are a Singaporean, you will definitely have read that for the last few years, the newspaper has been stating that most Singaporeans are under-insured by as much as $100k – $200k, given that the average insurance coverage that one should get to protect him/her against unforeseen circumstances like Death, Permanent Disability should be around $450k+…

This Situation Will Not Improve For Years To Come – Financial Planner Version

I was speaking to my ex-colleague some time back and she was highlighting that there’s been a change in the sales requirements (or in their context, the minimum sales amount they need in order to stay in that job). Their requirements would need them to “sell” at least $15,000 (and above) of annual premium, $100,000 (and above) of single premium and around $5,000 of annual premium in Investment Plans…

If you are able to hit these amount and go beyond, you will be look upon by your sales manager and group sales director and you will get rewarded with more perks and benefits. If you are way below these amount, you may lose your job, get invited to a one-to-one sales motivational talk by your manager or be made to attend “sales clinic” to improve your selling skill…

Looking at the range of insurance plans that a Financial Planner can recommend, e.g. a Whole-Life Plan vs Term Insurance Plan and a person who really need some form of insurance coverage, e.g. Critical Illnesses… which of the above plan will the Financial Planner recommend? Make a guess… if you have talked to Planners before, you will definitely see a trend… they will recommend the Whole Life Plan… they know you need the coverage and they will do some planning for you and suggest a minimum sum assured of $100,000.

For a typical 30 years old guy, working and healthy, the average monthly premium for a whole life insurance plan can be at the range of $200/month or $2,400/year. If that guy is not willing, the recommended amount may be reduced by half to a sum assured of $50,000 with an average premium of $1,200/year. The next stage for this Financial Planner is to suggest that this new client should have his yearly review and to increase the coverage (=higher premium) if possible.

Deal is closed and this Financial Planner would just need to find around 11-12 of such similar type of client and he is more or less made it through that sales month…

If we look into another type of Financial Planner who believes in planning for others and would want to plan well, he may suggest that prospect to take on Term Insurance that may cover him for $200k and above for just $30/month (or $360/year). You see the difference in the premium amount and the coverage suggested?

Should the first Financial Planner behave like the second Financial Planner, he would have to find an average of 40 clients (I believe this Financial Planner may just collapse and eventually quit the industry because of over-exhaustion…)

Other Factors Include (Not Ultimately The Whole List):

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