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Financial adviser sells an unsuitable life insurance policy
26 Jun 2022 (1188 views)  

My friend asked my advice on the following case.

a) His relative, aged 50, bought a life insurance policy. The annual premium represents more than 20% of the annual income. The policy has a 50 year term 

b) The policy projected a return of 8% per annum. The policyholder signed a declaration that she was aware of the high risk. But in actual fact, she did not understand what she was signing. She trusted the agent and signed blindly. 

c)  The policyholder would not be able to pay the premium after retirement. How could the agent sell such an unsuitable policy?

I told my friend the following:

a) The policyholder can terminate the policy at any time and take out the cash value. The long term contract of 50 years is not an issue. 

b) The problem is that on terminating the policy, the policyholder may suffer a large loss. It could represent more than 50% of the premium paid during the first two years or longer. 

c) The projection of 8% return is unrealistic, and is actually irresponsible.

My friend said that the policyholder paid more than $20,000 of her hard earned savings. She could lose more than $10,000 on terminating the policy.

My friend asked if the policyholder should lodge a complaint to the newspapers. 

I told my friend as follows:

a) There could be more than several ten thousands of policyholders in similar situation over the past decades. This case is not unique. The newspaper would not print the story. But he can try. 

b) The real problem is that the regulator (i.e. MAS) allows this type of policy to be sold, provided that there is disclosure of the risk and the penalty. However, many ordinary people do not understand the form that they sign or the risk that they face, until it is too late. 

To avoid this risk, it is better for the ordinary people to understand the nature of the life insurance contract. I wrote this book over 10 years ago to explain what the public needs to look out for. Most of the points are still relevant today. 

Get value from life insurance.

Tan Kin Lian

 


Financial adviser sells an unsuitable life insurance policy
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My friend asked my advice on the following case.

a) His relative, aged 50, bought a life insurance policy. The annual premium represents more than 20% of the annual income. The policy has a 50 year term 

b) The policy projected a return of 8% per annum. The policyholder signed a declaration that she was aware of the high risk. But in actual fact, she did not understand what she was signing. She trusted the agent and signed blindly. 

c)  The policyholder would not be able to pay the premium after retirement. How could the agent sell such an unsuitable policy?

I told my friend the following:

a) The policyholder can terminate the policy at any time and take out the cash value. The long term contract of 50 years is not an issue. 

b) The problem is that on terminating the policy, the policyholder may suffer a large loss. It could represent more than 50% of the premium paid during the first two years or longer. 

c) The projection of 8% return is unrealistic, and is actually irresponsible.

My friend said that the policyholder paid more than $20,000 of her hard earned savings. She could lose more than $10,000 on terminating the policy.

My friend asked if the policyholder should lodge a complaint to the newspapers. 

I told my friend as follows:

a) There could be more than several ten thousands of policyholders in similar situation over the past decades. This case is not unique. The newspaper would not print the story. But he can try. 

b) The real problem is that the regulator (i.e. MAS) allows this type of policy to be sold, provided that there is disclosure of the risk and the penalty. However, many ordinary people do not understand the form that they sign or the risk that they face, until it is too late. 

To avoid this risk, it is better for the ordinary people to understand the nature of the life insurance contract. I wrote this book over 10 years ago to explain what the public needs to look out for. Most of the points are still relevant today. 

Get value from life insurance.

Tan Kin Lian