A FEW weeks ago, Mr Tan, a regular client, came by the office. He was excited about a new investment he had made, in an insurance savings plan.

He was confident it would give him good returns while offering substantial insurance protection.

Mr Tan had acted without first seeking our advice, which was unusual. However, that was not what rattled me most.

First, some background about Mr Tan. Now in his mid-forties, Mr Tan became our client about six years ago. Even then, he had been saving and investing for a good 20 years. He was an easy client to advise because he understood the fundamentals of good investment. He did not rely on luck – he looked instead to hard work and sound advice when deciding where to put his money.

This clear-eyed approach had served him so well that Mr Tan was already able to retire.

So when he came to the office describing his latest investment, I was very concerned as I am familiar with this product.

“The agent explained to me that I could buy the insurance policy by paying RM50,597 a year for five years. That means a total investment of RM252,985. Under the plan, I get RM3,960 annually for first 5 years and RM7,920 for next 19 years. At the end of 25 years, I get an additional RM398,362. That’s a total of RM568,642.

“It’s win-win. I’m protecting myself. I’m also investing for the future. And should anything happen to me, my children will get the money.”

I have often written and talked about insurance savings plans with one clear message: seek advice first. Thankfully, I was able to persuade him to leave the documents with me so that I could have a closer look

As I scrutinised the paperwork, I saw what I had anticipated – that the deal was not as sweet as it had sounded.

Under Mr Tan’s plan, with annual returns and the lump-sum payment at the end the client gets back RM568,642 for an investment of RM252,985.

A key point to note is that insurance savings plans always demonstrate their worth by using ringgit values and not percentages.

It is very difficult to compare a ringgit value return to the fixed deposit rate, which is what most people would use as a benchmark.

Very often, these plans offer death coverage. In Mr Tan’s case, it was to the amount between RM136,000 to RM424,000 . This plays on a person’s natural fear of mortality.

If anything happens to the client, that money is paid to the family. This is a comforting thought – the client now feels that they are securing their future as well as helping their children’s.

I called Mr Tan and asked to meet urgently. I explained my serious reservations to him and presented alternatives. “Mr Tan, why don’t you optimise what you have by buying a term insurance policy for a smaller premium to cover you for the same amount?”

“You can always invest the difference in an investment that can earn you a return of up to 8% per annum. You have been achieving that kind of return for your liquid investments for the past 10 years. At the end of 25 years, you will get something like RM1,153,439.”

“This is so much more compared with RM568,642 that you get from the insurance plan. This plan is suitable for those who need forced saving and don’t have investing knowledge to invest their saving. However, it is definitely not for you.”

For a while, Mr. Tan stared at me blankly. Then it all clicked and he said, “I should never have invested in this. Thankfully, I’m still within the ‘cooling-off’ period. I can get my money back.”

Relieved he was willing to accept the advice, I relaxed. Over a cup of coffee, I asked him what really happened as he was usually so careful.

He sighed. “I don’t know. When my banker came to see me, he brought an insurance agent with him. They were very convincing, talking about saving money and leaving something for my family. I was so taken by their presentation that inside my head, everything jammed.”

I smiled at the word “jammed” because I knew exactly what had happened.

Mr Tan was a man who was used to straightforward investments. However, this was a hybrid – an investment combined with insurance. It was presented to him in a polished package, with many emotional factors. He became confused and couldn’t objectively dissect the benefits the way he usually would have.

As we parted, Mr Tan said: “I completely forgot what you have told me time and again: that insurance is not the same as investment. Insurance companies can give me coverage and protection. But that does not mean they are experts in making my money grow.”

With even a seasoned investor like Mr Tan taken in, I couldn’t help but think of all the younger, less experienced players. This is what I would advise:

If you are presented with an investment opportunity, you must be clear about:

● What you’re investing in exactly;

● What is the annualised return on your investments, and

● What terms and conditions you are agreeing to.

If you are not comfortable or not confident that you understand everything fully, never be pushed into agreeing. Seek advice or reject the offer outright. It is your right.

TLDR insurance is not investments, even if the plan is called investment linked policy.

我好奇~为什么大家都是保险公司，有的便宜又大块？有的贵又小块的呢？？
照理因该全部人都去买便宜又大块的吧？？
还是bank negara傻的？？
还是不买便宜又大块的人傻呢？？

MNet,

Where did you copy this article from?

Surely this is not your client and article.

Again, insurance companies are not good with investment? Or it is the type of plan governed by Bank Negara that endowment plans are such because of it's guaranteed feature?

Tell us what investment you can guarantee the returns, tell us readers here? Bring your experts.

Do not put down insurance companies and mislead others here.

You got some points correct, but another 50% are non factual.

We are all interested to know which investment can guarantee the returns as promised, with capital guarantee of course over x no of years.

Pls note here I'm not saying ppl should buy endowment plan to get rich.

Your point here is to invest, invest and get rich. Forgo insurance and buy term. Can you support your statement above how this works, I buy term, and I invest other place. In event of misfortune, I still want my investments to work and grow, guaranteed returns etc.

Thank you

This post has been edited by ChrisGood: Jun 7 2014, 02:05 PM

Article by MNet on Mr Tan taken from Star Biz (7 June) from a financial planner.

Even original author has conflict of interest as financial planner, he may want to sell certain other products.

Exactly, thank you Sir/Mdm.

Once yap Ming hui, the claimed guru of investment and writer of few insurance/ investment books was interviewed in a radio session. He has the believe, and convinced his clients to:

Buy term insurance. Buy the least insurance. Invest the rest. Buy traditonal, cheaper. You can make the investment money yourself. He even gave an example of 'education plan' parents buy term, can invest in property etc for future funding of their children's studies. All this 'investment experts' use investment 'returns' as protection. But for some ppl, what's in between also is best. They harp on diversification, but because of their other intention, tell ppl to buy the least insurance as it's a cost. *What is free in this world?

I gave him a grilling when I called him during Q&A, then he admitted what he advised wasn't for all. Then only say some other plans ie investment linked, or endowment plans, each have it's own purpose when probed.

He may convince high net worth clients to look from investment perspective of high returns etc, but he forgot the fundamentals of insurance. We insurance agents don't go around telling ppl, "invest little, buy more insurance" But these so called experts go around telling ppl "buy term, cheaper, invest the rest" but not elaborating what are term insurance and it's shortfalls.

About the article on Mr Tan, we wouldn't know if Mr Tan actually made a wrong decision or being mislead by his agent. He probably made the best decision of his life getting the saving+insurance plan. Because return of investment was not his concern. And he probably made a worst choice by listening to his friends/ accountant, go for more return!! So his friends/ a accountant convinced him using 'greed'..

This post has been edited by ChrisGood: Jun 8 2014, 04:15 PM

Actually, it makes sense for high net worth clients, as they are self insured generally, insurance is not very important financial compensating tool already. But middle class people is.

Actually, there is never an issue or right or wrong, as third party, we cannot say whether one is making right or wrong choice by having more prioritise on investment or insurance, or how one buy insurance, or invest.
It is more about personal manner.
What other can do is merely give advise on it. There is no perfect advice or right or wrong in between.

Every person is different, be it financial situation, family, and preference on how to manage their wealth etc.
Whether term insurance, life insurance, education, investment linked, has different purpose that may be preferred or not by a person. There is no right or wrong.
A person should buy an insurance based on his/her needs, and what he/she prefer to have.

Never invest or buy insurance based on other telling but make the decision yourself.
Advice should be always taken as reference, whether what is needed, what is preferred, your situation, all you know the best, and you are the one to make the decision.
Never make an investment, or buy insurance based on a talk by other that said it is good to do so.

You and many other agents may be giving good advice and fair view, but do you agree the word "we" cover blanket all the agent should be modify a bit ?
Look at the below quote...

What is term insurance and shortfall gv real life insurance plan name.

+1

Insurance are very personalise, every individuals are unique and have different need.

We are lucky Malaysia had removed Inheritance and gift tax long long ago. Cause all rich man in Hong Kong, China, Taiwan they are heavy insured, especially trust insurance. The sum assured is protected by Insurance Law, even government, creditors, tax agent & etc can't touch the insured money to their loved one.
Now Malaysia keep finding ways to get tax, please do not discount it will implement again. It just matter of time.

https://forum.lowyat.net/topic/1479601/all

We all know most rich man are business man, one thing they afraid most is Tax Department, LHDN. You will be wrong LHDN won't find his/her love one when the rich man passed away. First thing they will do is freeze all the asset, if without the Will, the family & children may need to wait at least 6 months, after all clearance from tax & court. But at the time all creditors will come find them to get back their money.

Even Hong Kong richest man Li Ka-shing are heavy insured in Life. Please read the link as below for what he had said about Insurance.

http://www.docstoc.com/docs/55937159/Why-b...nce-Li-Ka-shing

This post has been edited by conqu3ror: Jun 8 2014, 05:48 PM

Yes, a lot of high net worth people buy insurance for the purposes, they are not interested the financial compensating amount (primary), as they are self insured already, insurance just something extra to have.
but they treat insurance as part of tax and wealth planning purpose.

Middle class people bought insurance primary is for financial compensating tool (besides can get some tax relief), but for high net worth bought insurance primary reason may be for tax and wealth planning issues.

But if agent used LKS bought insurance news to convince middle class cash tight people to buy insurance that it is entirely 2 different front already.

Actually insurance can be one of good tool for estate planning, protected against creditor as well, that many agents don't take advantage on it to promote.

This post has been edited by cherroy: Jun 8 2014, 06:05 PM

I'm being offered Lifestyle Security Accident Plan from Etiqa. For Diamond Plan, the monthly premium is RM 37.20 monthly. No medical checkup required.

Is this a good PA coverage?

This post has been edited by David83: Jun 8 2014, 07:52 PM

yes very comprehensive pa

Survey properly. My pa coverage is less than rm600 yearly for 750k coverage.

total coverage is 750k x 150% = 1.125m after 5 years?

1. No medical checkup required for PA plan is really no big deal. i haven't heard of any that needs medical checkup. After all, the point of it to cover anything that results from accident.

2. and i was wondering for very very long why this PA is so cheap. Note that this PA doesn't cover accidental death (based on my search on maybank website. accidental death is only 10% of sum assured)

3. the lump sum amount, total paralysis benefit is a lot. however it's only payable upon total paralysis. Need to know how etiqa define this.

Dear Cherroy,

Very true and I agree with your comments above.

Insurance, as mentioned by Conqueror, is supposed to be catered based on the needs of an individual, the needs are based on affordability, his wealth and liabilities, dependents etc etc

On liliysun's post regarding the insurance plan bought for her child- she thinks she made a wrong decision after reading wongmunkeong and Roy's post- advising her to buy less premium and probably invest the rest. We don't know the actual insurance plan proposed except life and the room limit. Her agents want to upsell definitely but we don't know her actual affordability.

There are many ways an agent can sell, the aggressive ones will:
1) sell big premiums with high returns and benefits
2) talk big numbers and scale it down
3) selling strategy based on "what the prospect wants to hear and buy"
4) keep selling you small premium policies so can sell in quantity- in terms of coverage, nothing much. But one day sell you one hell of a savings plan with huge premium.

The others:
1) based on clients affordability, work out a figure then put in the coverages etc to fit in the agreed premium
2) needs based selling
3) very individualized plans, different clients has different needs

Note:

Some agents, will make you but a lot of term and traditional policies. Today you buy life/TPD. 6 months after tell you buy PA. 3 months later ask you buy early stage critical illness plan. 1 years later tell you buy extra life new policy because your life term I only rm50 k. Your medical card need to buy new plan, old one cannot upgrade because it was term. Then ask you buy endowment for savings maturity at 25 years. End up you have 10 policies and premium P.a almost RM1k
You cannot cancel, cannot upgrade, cannot amend the insurance plans etc, surrender at lost and buy again option, cannot restructure.

Then you believe the notion of invest the rest make money like some in this forum advised.

Initially, you budgeted rm600 for insurance, believing that the premium and coverage is adequate for another 5-8 years down the road.now you are spending rm1k with 'dead policies'. Buy low premiums, as low as possible as insurance is a cost. But end up buy many with most minimal coverage (that's what clients want).
Worst is when the unfortunate happens, then only finding out that this coverage don't have, that coverage don't have, medical card premium keep increasing and no waiver etc etc. Then blame insurance companies for being a cheat.


How many of you hate insurance because of the above scenario?

This post has been edited by ChrisGood: Jun 9 2014, 11:59 AM

Are insurance savings plans all they claim to be?

URL: http://www.thestar.com.my/Business/Busines...ey-claim-to-be/

Won't be a complimentary to an existing investment-linked life insurance policy?

Other PA got high payout on accidental death?

what is term life insurance

PRUTerm

Now all i did was google that.

OK. i don't know Pru's plan but most term life insurance work in a similar way. just as explained in that cnn website.

so the obvious point is (not based pru's plan, just term life insurance in a nutshell)

1. if the person dies after expiry of the insurance, no payout
2. there's no cash value upon the expiry of the insurance plan. Usually there's cash value to go with the term life plan but it goes like the shape of bell curve. peaks around somewhere in the middle of the term and reducing to zero at
3. term life - indicates that it covers a certain term of your life... 20 years, 22 years... 30 years... etc
4. usually the expiry is like 80. not up to 100

Shortfall?
it's not complete life coverage. but seriously, if i'm 70 with no dependent and all loan paid off, i don't really need anymore life protection. if i'm 70. i need more on things like annuity, medical.

the other problem is the rider part.
say your term life insurance expires at 70, your CI and medical may expire later, but when you buy these 2 riders together with the term life, the riders cannot be longer than your term life insurance, thus ending your medical coverage earlier than intended. my understanding is no insurance company will maintain the riders after the expiry of the term life insurance. if they do, it's ok...

Complimentary? i don't see why not if you don't have a PA attached. but few things to point out
1. for those with a corporate job, you are covered under company PA. not sure if company's PA covers death only or death/TPD. you can always check with HR.
2. normal ILP payout includes D/TPD as a result of accident as well. PA is just additional money.
3. this etiqa plan is focusing on 'living' benefit rather than death benefit. the big chunk of the benefit is only payable upon total paralysis, the whole 700k (which i assume is the same as TPD). need to read through the material that they send to you through snail mail.

Usually, when they sell PA, they pay out a lump sum amount upon Accidental Death/TPD. usually the amount is bigger than what is offered by Etiqa's lifestyle plan (you may check out MSIG individual PA as a comparison, couldn't find allianz pa on their website, better to do survey with the big general insurance company). of course it's up to the company to design their product.

This post has been edited by adele123: Jun 9 2014, 01:04 PM