With insurance being such a hefty long term financial commitment, we need to make sure the policies we invest in tailor to our specific needs, are of the proper value and are not too good to be true. Conversely, we should also be wary of ignoring the purchase of a necessary policy just because we are skeptical.
These four insider tips will help prevent you from falling victim to poor choices, so you can allocate your hard-earned cash more wisely:
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1. Your agent promotes himself more than he listens to you
We’ll start with a true story.
On our very first meeting with this particular insurance agent, we were presented with a meticulously kept binder that was full of testimonials. The comments we saw inside were so effusive, we thought we were looking at a Justin Bieber fanpage. After poring through the binder, we spent the next 45 minutes listening to this agent talk about the sports car he drove here in and the stylish condo he recently renovated, while staring at the fancy watch he was waving around our faces.
At the end of the fact-finding session (in which he was supposed to find out about us, not the other way around!) we were left with the impression that this is someone who is certainly doing very well for himself. But we had zero confidence in his ability to give us sound financial advice. Why? Because he never bothered to find out a single thing about us. Instead, he spent the entire time setting himself up like some financial guru who’s got it all figured out, and all we had to do was to blindly trust his recommendations and hand over our money.
We know it sounds like we exaggerated the tale for entertainment value. But what if we told you we have insider knowledge that confirms this is an actual sales tactic used by some insurance agencies? The rationale behind this is sound, if a little transparent. If your agent cannot convince you that he or she is doing financially well, why would you ever take financial advice from them?
But therein lies the rub; in setting themselves up, some agents take the act way too far. A good financial adviser sits down and gets to really know you. They listen so they can understand your dreams and goals, empower you with the right financial tools and appropriate advice, and help you take the next step when you are ready. So if it seems like your agent is telling you more about himself or herself instead of genuinely understanding you and your needs, you might want to get off the roller-coaster before the ride begins.
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2. You are told this is the “best plan on the market”
Here’s another true story we know.
We once met an earnest young man who told us he has a policy that will give him returns of S$1 million, at a monthly premium of around S$300. We thought that seemed highly unlikely, so we asked to see this wondrous policy of his. Our stomachs dropped when we saw that what he has was an Investment-Linked Policy (ILP), with riders for critical illness, hospitalisation and personal accident. The benefits payable under these circumstances were nowhere near $1 million.
So where did he get that idea from? Turns out, the $1 million is merely a projected return, and even if his policy hits that mark, he’d have to wait till he was 84 years old! Now, as you may know, a Projected Return may never come true. In any case, insurers certainly aren’t required to deliver on those claims. This goes doubly so for an ILP, which does not come with any guaranteed returns.
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We asked this young man why he bought this particular policy. He simply said, “Oh, because this is the best policy on the market. That’s what the financial services manager told me.”
Moral of the story: there’s no such thing as a “best plan on the market” when it comes to life insurance. There’s only the best plan for you, according to your unique needs, goals and aspirations. So if you meet someone who tries to sell you a policy because it is “the best”, run.
3. You are enticed to spend more than you originally planned
You probably think otherwise, but profits from the sale of insurance products are not that lavish. (This is because of the 1:9 rule, which states that for every dollar of profit declared, nine dollars must be disbursed to policyholders.) As a result, insurance agencies have very little wiggle room to offer straight-up discounts. But that doesn’t stop some from trying, and agents have been known to offer vouchers, lucky draws and other perks as a marketing tool.
Now, you should be wary if the perks you’re offered seem particularly generous. Especially so if you have to sign up for a bundle or package plan. If the bundled policies are what you need, then go ahead and take a closer look at them. But you should never buy a plan you don’t need just so you can get, say, a pair of plane tickets.
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Another tactic you might encounter is being asked to charge your credit cards for premium payments that are not due yet. For example, if you opt to pay monthly, your agent is not authorised to collect more than 2 months premium to get the policy started, (or however much as stipulated in your policy documents). You should be wary if your agent tries to get you to pay for extra months using your credit card, and offers to pay you back the difference in cash, telling you that you can earn more air miles or rewards points this way.
With this tactic, your agent is likely trying to inflate his or her sales figures for the month. They may be trying to reach a certain milestone to qualify for a company perk or cash prize, or they may even be trying to stave off being let go. Although on the surface this arrangement seems to benefit you, would you really want to trust your money with someone who would try to game the system like that?
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4. You are forced to choose between limited options
It’s been proven that when faced with endless choices, human beings become paralysed, with many ending up not choosing at all. As you can imagine, brands don’t like paralysis of choice and that’s why they try to give you only enough options to maintain the illusion of free will. This is true whether you’re buying groceries, coffee, newspaper subscriptions, cars or insurance.
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If you’ve spent some time listening to insurance pitches, you probably think that policies offer only certain levels of protection. Typically, you’ll be asked to choose between S$300,000, S$500,000 or S$1 million coverage.The truth is, those numbers are completely arbitrary. Technically, you could choose any amount of coverage you want — even your IC number, if that strikes your fancy.
To facilitate the buying process, agents tend to offer just two or three options, but you can (and should) ask for the exact coverage you and your family needs.
If you opt for coverage different from what was prepared beforehand, you agent probably has to go back and look up the correct premiums. This would mean having to meet up in another session. Some of you may be unwilling to do this, and may instead choose the next-best policy. This is not ideal. Insufficient coverage could prove troublesome later on, and purchasing another policy to top up the difference may end up costing you much more.
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Text: Chip Chen