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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):

  • Commissions offered for different type of insurance plans
  • Lack of Company’s Initiatives to Focus on Term Insurance
  • The Titles that Planners Can Receive (if they manage to hit the specific commission mark)

This Situation Will Not Improve For Years To Come – Client Version

It’s still quite a common sight to see that most people do not really like Term Insurance because of the fact that they do not want to keep paying for something that they will not get back eventually despite knowing that for a small premium they are being covered with a significant amount.

Financial Planning is still a Tedious Process to most clients. To do a Full Fact-Finding takes at least an hour or more and most clients are not willing to “think” of what they want, what they have and what they owe and in some cases, planning is done in the manner whereby the Client would suggest a comfortable monthly amount and have the Financial Planner do up the plans for them… so guess which type of plan will the Financial Planner go with??

Some clients still would like to have some kind gestures for taking up insurance plans. Sad but true… To get the most out, Financial Planners cannot depend on plans like Term Insurance to show their appreciation…

Final Note:

As you can see… the root of this problem may not be because of the need to improve Financial Literacy… it can be because of the nature of the whole insurance industry that still focus on the need for sales target and every Financial Planner for themselves (to feed themselves and people who depend on them). There’s also a long way to go for some Clients to get comfortable with buying of Term Insurance and having to understand the importance of going through a Full Fact-Find.

Lastly, the situations explained here are based on my personal feel and may not be the full indication on why most Singaporeans will not get enough insurance coverage. The figures, in terms of sales target and premium, mentioned here may not be the same for every insurance companies as well.

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