This is a blog post inspired in part by this Plurk, and also a conversation overheard on the MRT. The rest is based on my personal experience.

First, let me recap the conversation overheard on the MRT a few weeks ago. This guy was telling his female companion that he complete dislike his Insurance Agent (also known as ‘Financial Consultant’ / ‘Financial Planner’). The reason is when they meet once every year for an annual review, the insurance agent will always tell him he does not have sufficient coverage and try to sell him something new. The guy then went rattling on about his personal experience which I didn’t quite catch as the train was quite noisy and packed.

I am quite sure that his personal experience will be similar to what many of us have with our very own agents. How pushy the agent will be depends on how acquainted one is with him. Personal friends will usually be worse than an random agent on the streets or from referral by friends. A quick yardstick on the ‘success’ of an agent in their ‘insurance business’ will be the car he drives, and the awards he has received. Back when I was in the army, the agent who sold me my first contract went from an old Datsun 120 to a Jaguar, and then run his own insurance agency selling AIA policies. He then dumped me with a new hire in his agency, probably because my account wasn’t profitable. Another agent I knew (who is a fellow NSmen during my reservist trainging) has since upgraded to a BMW 5-series and is a few time award winning member of AIA’s million dollar club.

Anyway, these are just a few success stories and it’s not the main point I am going to make. For a start, let me just point out that another friend (who didn’t do too well in this line) told me the reason the surrender value of our policies is zero for the first 3 years is because the contribution we made goes into paying for the insurance coverage and the agent’s commission. That was a startling discovery when I looked at all the policies I have bought over the years. Simply put, the amount of money an agent make is directly proportional to the policies he sold. In view of that, I must say the guy ranting on the train and my poor friend who said her agent is irritating are both quite justified.

Back to the policies I have bought. During my NS days I bought an endowment plan which I can afford with a part of my NS allowance. There wasn’t much coverage in that, but that was far better than the pathetic S$4000 coverage I get from the SAF in the event of death during training. When I started working, that plan got converted into something else with a better coverage since I could now afford a higher premium. As time went on, I was introduced investment plans, which now I have a few – ranging from those allegedly low risk, to those which allegedly gives better returns. All of which went south during last year’s financial crisis. Some of these investment plans were bought with cash, and some with CPF. Over the past 10 years, I now have a good S$100,000 sunk into all of these investment plans. At one point of time I was looking at a paper loss of S$40,000, but as of this writing it has since recovered to S$17,000. The losses would be steeper if I include accrued interest from either the CPF or a vanilla low risk fixed deposit.

The losses is something any investor have to bear with, but there is something very irritating in those savings-cum-investment plans. The insurance company will first take the payment to purchase units from unit trusts of the policy holder’s choice, and then sell a small amount to pay for the insurance coverage. The reason they do this is pretty obvious, because they will buy the units at the ‘sell price’, and sell the units at ‘bid price’. In short, in the process of siphoning off a small portion of your premium legally to pay for the insurance coverage, the insurance company also earn from the spread (i.e. difference between the bid / sell price). Why they didn’t already factor that into the premium already is beyond my imagination, not to mention that I personally find this… unethical.

As I looked through all the investment policies, I noticed there are at least two bought with CPF-OA (Ordinary Account), and one from the CPF-SA (Special Account). While I can understand why there is a separate policy for an investment made with my CPF-SA, I cannot understand the rational between having two policies for CPF-OA from the same company. Perhaps I have been told I couldn’t just ‘top up’ into an existing policy but I’ll ask again just to be sure. However, I am certainly not happy with having several policies with overlapping coverage. If one wants to argue that I enjoyed ‘extra coverage’, perhaps they should be aware that it is coverage for accidental death which in reality is only to the advantage of my beneficiaries and does not actually benefit me.

Now, that’s not all an agent can (or will try to) sell. There are also health-care plans covering hospitalisation and outpatient. Please be careful when you buy any of these because it probably wasn’t emphasized strong enough to me that the standard health-care plan I had only covers up to $3000 and I have to pay the rest of the medical bill myself. I only did a re-cap with the agent and I was reminded it is a co-pay system which I have to come out with part of the bill first too. I did this because I received a letter suggesting that I upgrade my plan (and my parents) for better coverage when the premium is due. While I had ignore them at first, by coincidence a brother-in-Christ spoke about this with me and subsequently explained it all to me in detail. Otherwise, the entire matter would have slipped my mind.

I am quite sure many are reading this would say that I am being lazy because being an educated person I would have read the letters and policy documents and figured out all these by myself. Perhaps, but my gut feeling is that most people except for a handful would even bothered to read those freaking documents! On top of that, I will not be surprised if a lot of clauses in the policy documents are repetitive and they probably come out of a template. Let me buy your a beer to congratulate you if you have several insurance policies and you actually read every page of them.

This isn’t the end of my gripes yet! An agent told me last year during review that I ‘do not have sufficient coverage in the event of hospitalisation for my medical expenses’. He advised me to buy yet another investment policy which in this case part of the premium paid will go into getting me this coverage. When I asked whether I can add this coverage to an existing policy in the form of a rider, he was reluctant to do it and cited that this would reduce the investment portion of the existing policy.

That really pissed me off because I am agreeable to lowering the investment portion of my policy or pay more into an existing policy for this coverage. His refusal to do so convinces me that he just wants to make more money out of me, and not to ensure I am well covered. I breathed a sigh of relief and thanked God that I didn’t sign up for it because a few weeks after that, the entire financial market was shot to hell.

Looking back at my experience with insurance agents so far, I think it maybe necessary insurance company create an vanilla plan detailing the complete insurance coverage everyone should acquire when the first policy is sold. This plan would help an agent remind a policy holder what he lacks during the annual review so he would not discover to his horror every year that he suddenly didn’t have enough coverage. In fact, this plan should be based on the potential buyer’s earning power so he can work out a comfortable amount to set aside to obtain coverage. I get rather sick with the fact that every few years I am told I don’t have enough coverage when a few years ago I thought I had everything covered rock solid. In fact, I can’t help but feel that my agent or the insurance company is either trying to rip me off or milking me for more money to keep their profits going. As it stand now, I would rather take the risk and go ‘naked’ without the coverage I allegedly lacked unless the government gahmen makes it mandatory by law to do so.

Insurance agents should understand how policy holders and potential buyers are feeling to have an idea why we are all reluctant to meet them regardless of the prevailing economic conditions.