Lower Projection

SINGAPORE] A projected annual investment returns figure that has been used to market life insurance products for more than 11 years might be coming down.

The Business Times understands from various sources that from July this year, the figure could drop from its current 5.25 per cent by possibly half a percentage point.

BT also understands that an annual review might take place on this figure in line with the push to improve standards in the financial advisory industry.

The change will not affect the actual values of existing or future insurance policies. But it will give a more realistic picture of how life insurance policy cash values grow over time.

IFSA Launched

Although the Islamic Financial Services Act (IFSA) is expected to see some takaful players, especially those with a composite licence, split their life and general operations, it has not deterred their gameplan to strengthen and grow their takaful business amid the growing and competitive Islamic insurance landscape.

The Financial Services Act (FSA) and the IFSA are likely to come into effect by mid this year and would, among others, require conventional and takaful insurers to relinquish their composite licences, and conduct their life and general insurance businesses under separate units or subsidiaries.

The new ruling could have a “huge impact” on insurance firms, especially takaful players like Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd. The impact would be felt more deeply in the takaful industry due to the higher number of composite licences issued to them compared with their conventional insurance counterparts.

The brokerage said, however, the rules would not apply to the four takaful companies that secured the latest family takaful licences in 2010. They four are AmFamily Takaful, Great Eastern Takaful, AIA-AFG Takaful and ING-Public Takaful Ehsan.

AmBank Group

AMMB Holdings Bhd, fresh from absorbing acquisitions of Kurnia Insurans (M) Bhd and MBF Cards (M) Sdn Bhd, is now gearing up to get a strategic foreign partner for its life insurance business AmLife Insurance Bhd.

Aiming for a slot among the top five in each of its business segments, the group is evaluating interests pouring in from global bigwigs for a share in AmLife Insurance. Selection of a strategic partner with a global presence and Asian experience will take almost three months before the group has a “clear picture” of its potential partner, said its group managing director Ashok Ramamurthy (photo).

Australia and New Zealand Banking Group Ltd (ANZ), which came on board AMMB in 2007, now holds a 24% stake in the AMMB group.

In a separate press conference last Friday, AmBank chairman Azman Hashim said the banking group is in the middle of a negotiations to sell its conventions and Islamic insurance units to a new partner.
Ramamurthy said the company is open to selling a stake in the life insurance arm; however, it intends to keep a “reasonable” stake in the business.

Foreign companies can acquire as much as a 70% stake in Malaysian insurance companies. The restrictions on foreign ownership was eased from a 49% level in 2010 under the financial sector liberalisation plan.

Insurers Collusion

South Korea's antitrust watchdog said Thursday that it has fined nine life insurers a combined 20.14 billion won (US$18.06 million) for colluding to fix commission rates.

The nine are Samsung Life Insurance, Kyobo Life Insurance, Hanwha Life Insurance, Shinhan Life, MetLife, Prudential Life Insurance, ING Life Insurance, AIA and Allianz Life Insurance, according to the Fair Trade Commission (FTC).

The watchdog found that they colluded to fix commission rates by setting the minimum amount of benefits for their variable insurance products that customers are guaranteed to receive when they reach eligible ages or conditions.

Variable insurance is a type of insurance product whose benefits could differ based on investment returns. The minimum benefits are guaranteed to ease worries that the amount that customers receive could plunge when investments go awry.

In return for setting the guaranteed minimum benefit, insurers charge their customers commissions.
"The rates are one of the important factors that customers take into account when choosing what insurance products they will purchase. They should be determined through free competition among market players," the FTC said in a press release.

In 2001, Samsung Life, Hanwha Life, Kyobo Life and Prudential were found to have been involved in fixing the rates for variable insurance products. In 2002, all of the nine cited companies were engaged in similar practices.

Samsung Life was slapped with 7.39 billion won in fines, the largest of all, followed by Hanwha Life with 7.12 billion won. Kyobo Life and MetLife were fined 4.09 billion won and 874 million won, respectively, the FTC said.

Of them, the watchdog said that it will refer five companies -- Samsung, Kyobo, Hanwha, Shinhan and MetLife -- to prosecutors for further investigation.

Uninsurable Increases WIth Age

It's typically a fundamental truth that life insurance serves as a critical role in protecting a family from the possibility of financial hardship. In its most basic sense, life insurance is designed to protect the economic value of a human life - most commonly the "breadwinner" or majority income earner of the family, but it is also associated with business uses in the form of buy-sell agreements, key person indemnification, credit enhancement, business continuation and employee benefits.

Regardless of its purpose and notwithstanding variations of term and whole life policies, time is of the essence.

Most income producing individuals have dependents that rely on that income for the amenities of everyday life; not to mention the continuation of lifestyle, residence, education and retirement.
It is a morbid reality, but one that is paramount to plan. And in many situations, it is prior to death but after diagnosis that the hourglass has run out on the option of providing protection for one's family.

An insurance professional, recently received a phone call from a close friend asking if he still had the ability to purchase life insurance...while notifying him that he had been diagnosed with Stage 2 cancer.

Before the call, his friend came to the daunting realization of the risk he took by not buying life insurance. In the past, the two had casually discussed its growing importance, especially after the birth of his daughter and purchase of a new home. He claimed to have had plenty of coverage and decided that an evaluation was not necessary.

The window of opportunity to purchase or increase the amount of life insurance may be closed, however every option is being evaluated - primarily in exploration of the group policy with his employer.

It's glaringly obvious that an individual that dies prior to obtaining life insurance will not have death benefit proceeds - but what may be less known is that most life insurance policies evaluate your insurability with a health questionnaire and medical examination.

Unless finances are such as to alleviate the risk associated with a death or disability of an income producer, acquiring some form of life or disability insurance is a discussion worth having. And prior to any diagnosis that may make you un-insurable.

Affordable Insurance Scam

Don’t let your desire for affordable life insurance cause you to fall victim to one of the following life insurance scams.

Teaser Rates
You might see an advertisement with some wonderful, introductory price like “as low as $1 a day” for term life insurance. But don’t be fooled. People over 50 aren’t going to get that rate on an ongoing basis. You might get it for one month. That’s a very low rate offer, and it’s only for very young, very healthy people.

What the insurance company is hoping is that you’ll get sucked into dealing them without shopping around for a better rate than what they’re really going to offer you month after month. Read the small print. You want a policy where the premium stays the same, rather than increasing at regular intervals- and potentially pricing you out of insurance when you need it the most.

Check with an independent life insurance agent. They will be able to offer you life insurance that will be affordable for the entire term of the coverage. They have many options and won’t give you a teaser rate.

Only Whole Life Insurance
If you’re in the 50-plus age range, don’t listen to someone who tells you that whole life is your only option.

Term insurance is still a product where you can usually qualify for a good amount of coverage, even in your more senior years. And, you CAN get reasonable term rates and death benefit amounts as you age. We prefer level term insurance where the premium and the face amount remain the same throughout the term period.

And there’s also the option of universal policies, which provide the flexibility that many people are after. You can get lifetime coverage with a universal policy that will generally be less expensive than whole life insurance.

Depending on your situation and why you’re buying the policy, a term or universal policy might be the most practical and affordable life insurance for you—so don’t be talked into not considering those options.

A Rate that Seems too Good to be True
Preferred Plus is the best health rating and so of course everyone wants it—it means a better deal. But if you have some medical issues (e.g., diabetes, history of heart disease, smoking) tr take certain medications, it’s a fantasy to think you’re going to get Preferred Plus.

If you’re dealing with an agent who tells you can get this in spite of your medical issues, don’t believe it. It’s not up to the agent—it’s up to the insurance carrier. The agent can only give an estimate, which is in no way binding.

If an agent tries to win your business by promising the ability to get you a top health rating, it’s time to move on and look for an independent agent who’s built a reputation for integrity. An agent can only give you their best estimate, and if you have health issues, don’t expect the best rating category. It just doesn’t make any sense.

Be suspicious if you’re dealing with an agent who doesn’t ask you for a fair amount of health information. The more detail agents have, the better they can estimate what your rating will be. When you get different pricing from two different agents, you need to consider the amount of information they each requested. More info- better estimate (quote). Remember, the insurance company will always give you the lowest rate it can under its underwriting guidelines.

Here’s an example:

• You talk to 2 agents.
• Agent A thinks you will get a standard rating and Agent B says preferred.
• You should ask agent A why standard when someone else thinks preferred. They should be able to explain to you why you won’t qualify for preferred.
• Applying with Agent A may be your best deal. They will have chosen the lowest cost company at that higher rating.
• If you go with Agent B and you get a standard rating (the higher rating), you will now be with a more expensive company than if you had gone with Agent A.

The lowest quote is not always the best quote, the most accurate quote, or sometimes even a possibility.

The Bottom Line
To avoid scams and get the most affordable life insurance, it’s best to deal with an experienced, reputable independent life insurance agent who’s built a lasting business on consistently getting
customers the best value possible.

Insurance - Risk or Investment

Consider this. Your friend tells you of an investment product, which generates a cash flow of RM1 million for your family if you die of natural causes during the next 20 years, but nothing at all if you survive. To buy this product, you have to invest only RM10,000 every year for the next 20 years. And here is the attractive feature of the product: If you die during the period of the investment contract, say, in the 6th year, your family does not have to make the annual investment, but will receive RM1 million! Will you buy this investment product?

Risk
If you are a typical individual, chances are you will consider this investment risky. You will evaluate your chances of surviving in the next 20 years. And if the likelihood of survival is high, you will rightly conclude that the investment is unattractive. After all, why pay over the 20-year period and receive nothing in return? You would have realised that the product we are discussing is typical term insurance policy. And such contracts are not investments. They are just… plain insurance — contracts that indemnify your family for loss of your income should you die. Of course, discussing about death or dying is not really exciting, but nevertheless necessary. Why?

Loss of income

When you consider your insurance policy as a tool to indemnify a possible loss of income in the future, you may seriously consider term insurance policy — contracts that do not have any survival benefits. But when you consider the premium that you pay as investment, you require something in return, even if you survive. And that compels you to look for an investment feature in an insurance contract. Insurance companies oblige you by offering policies with survival benefits. The issue is that such policies carry high fees and low returns on the investment component (remember unit-linked insurance policies?).

 

Most of you nevertheless prefer such policies to term insurance because you may be suffering from what behavioural economists call ‘framing’. This refers to behaviour where you react differently depending on whether a product is presented as a loss or a gain. Studies suggest you will typically avoid risk when offered a positive ‘frame’ while seeking risk when you are offered a negative ‘frame’.

 

The bottom line: Consider life insurance premium as a cost to ‘insure’ your life, not as an ‘investment’ on which you need a return. You might then, perhaps, consider term insurance. After all, term insurance is just like your motor-vehicle insurance. You do not expect returns on your motor-vehicle insurance, do you?