Whole Life Policy

Often I come across clients who want to have an insurance cover for their entire lifespan. While it is understandable, it depends on the number of dependants you have. Many advise this plan to those who have no on look after them, unmarried, single mothers, divorcees or those without children are some example.

This insurance plan guarantees a payout whenever the policyholder dies for a premium to be paid all life long. Here, insurance companies add either endowment or savings element to the risk cover to ensure there is a cash value attached. These elements can be incorporated either on a traditional or a unit-linked platform. Most life insurance companies cap the maturity age for the polices between 80 and 100 years, depending upon the date of commencement of the policy.

Types of whole-life plans
The policy benefits are defined in guaranteed terms - sum assured or vested bonus, the insurer declares based on its performance. Bonuses are a percentage of the sum assured and declared at the end of each financial year. The investment risk of guarantees is born by the insurer. On a traditional platform, whole-life plans give policyholders a cover for life. And on their death, cash value to the nominee(s).

These work similarly on unit-linked platform, except the fund value is given as the cash value.
An individual can choose between lifetime and limited premium (5 - 10 years) payment modes. In limited premium plan, the total cover cost remains the same, but the average monthly / yearly premiums would be higher.

Some like LIC’s Jeevan Tarang offer triple benefits – whole life cover, yearly income and bonus on maturity. The policy is an investment-cum-whole life plan paying modest returns. It works like a limited-payment moneyback plan, bonus is paid at the end of the payment term, and a fixed percentage of the sum assured is returned every year till death. On death, the nominee gets the sum assured. Many others also have similar plans.

Premiums charged
Most whole life plans offer level premium contracts, that is, premiums and death benefits remain the same throughout the policy term. And as always earlier you buy it cheaper it is.

Advantages of whole-life policies

• Being a very long tenure product, these policies accumulate a big cash reserve which is paid out to the insured at the time of maturity or death.
• Given this plan is available for the entire life, unlike shorter tenure life covers, it ensures the insured has something to pass on to his/her loved ones whenever he dies
• With a built-in savings component, with every premium paid, these policies help in accumulating wealth with the applicable tax benefits

Disadvantages of whole-life plans

• The premiums of these plans are expensive than term covers
• People may lose the inclination to pay premiums for as long as they live and in some cases, may not be able to pay post retirement. The surrender value may not be attractive to exit in later years
• Policyholders cannot control the way money is invested in these plans and may have to settle for lower returns over the long run as its guarantee is based on investments in debt products, which cap growth

When to buy whole-life plans
Whole life policies can be used to make provisions for any medical expenses of terminally ill dependants, funeral costs or for some compulsory dues to be paid on death. Mostly money is not allocated for such expenses, thus adding to the financial stress after ones death. The policy proceeds can be utilised to meet these expenses.

These policies can be used for estate planning as well as the insured can provide in his will that his funeral costs and medical bills, if any, should be met out of the proceeds of this policy. On similar lines, whole-life policies can help in smooth transitioning of an individual’s estate to non-family members by nominating the relevant people in such policies to receive the money after death.

Other than these considerations, individuals could choose to keep distance from whole-life policies. If the primary concern is to have adequate life insurance coverage, the same can be met with other products such as term plans, which offer the cheapest risk coverage.

However, there may be times when whole-life plans make more sense than a term plan. Sample this, a 30-year old buys a term plan for 20 years. The insurance cover will end when he is 50. Considering the increasing life expectancy, he might have 20-30 years of life ahead of him. Add to that, most these days work post retirement. So, of the years left for him, at least 20 would be productive with a remuneration.

He might have met his key financial goals by age 60 but new ones could emerge as part of his retirement planning or post retirement work life. At 50, if he were to secure these, he will find the premium to be high, the medical examination onerous and will struggle to find a plan that meets his needs. If he had bought a whole-life plan at 30, he would have easily met his new goals. Ideally, one should have a term plan for fixed tenure at an early age and a whole-life one with a lower risk cover one can increase over the years.

Dread Subject - Life Insurance

Today I want to talk about reducing your financial risk, primarily the role that dreaded life insurance plays in your financial plan.

I say “dreaded” for a couple of reasons. In many people’s minds, when the phrase “life insurance” is mentioned it conjures up many negative feelings such as the pushy sales person who comes to your home and tells you, you need to buy more or that you have to die in order to collect.

But you need to understand this: Life insurance is meant to protect your financial plan and to reduce or eliminate risk, not something dreaded. What if your significant other passes away suddenly and you count on his/her income to pay the bills, or to take care of the children? Then what? The last thing you want to worry about at this time of sorrow is “where is the money going to come from?” By having adequate life insurance in place it allows your financial plan to continue on with or without you, all for the benefit of your family.

A good financial plan can be devastated by an unforeseen death. All you have worked for will be put at risk without protection. But, this risk can be lessened or eliminated with proper planning.
Owning life insurance has several other benefits as well. It can give you peace of mind knowing that in the event of a loss your family will be protected.

You can gift your life insurance proceeds to your church or favorite charity. Also, the proceeds of your life insurance policy will bypass probate when a beneficiary is named and that money will be available much faster to help with bills.

As you can see, life insurance is a very valuable component in your financial plan. It allows you to reduce or eliminate risk, which is a good thing. So there is no real reason to be afraid of the “dreaded” life insurance? It makes cents to me.

Getting Your Money Worth

Life insurance is one of the most commonly available mechanisms to hedge the risk of a premature loss of an earning member of a family. However, over the years, the sector has evolved and now, life insurance is counted among the preferred saving options for individuals.

With more number of companies entering the life insurance market,the type and number of policies available for an individual have grown multi-fold. What adds to the confusion for the common man is that there are very little differentiating factors among the products offered by these companies within a particular segment.

YOUNG EARNERS who have just joined the workforce or have around one to two years of experience and have no dependents and/ or liabilities technically do not require any life insurance policy. Consequently, if they have any liabailiteis or dependents, the insurance cover should be computed based on these needs only, and the best way to provide for this coverage would be a pure risk plan or term plan.

For individuals below 30 years of age, term plans have become really affordable and economical. On the other hand, even if these young individuals have no liabilities or dependents but are looking to add on both/ either of these within the next one year, they should opt for a term plan today before their next birthday to maximise the 'early movers' advantage on premium costs.

Special care should be taken to add the 'permanent disability' and 'critical illness' riders to the term plans at this stage as the premiums for these riders would also be available at very economical rates.

YOUNG FAMILIES without kids should look to adjust/ enhance the life insurance coverage under their respective term plans based on their needs and goals over the next 5-10 years. Adequate health insurance coverage should be added to one's insurance portfolio.

It would not be a bad idea to add standalone health policies in addition to any employer-provided health programmes. If the critical illness riders have been missed in the earlier stage, then they should be added here. Standalone permanent disability covers to enhance the disability coverage should be considered during this stage too.

FAMILIES WITH KIDS, a decent monthly savings pattern and not averse to using life insurance for their savings should look to investing in money-back policies and unit-linked products at this stage. A combination of both these plans helps in averaging the yield on policies.

Children plans are an excellent choice among the unitlinked plans at this stage as they provide various benefits like providing the sum assured to children in case of the parent(s) death providing lump-sum money at major milestones of their child's life and also providing double to triple life cover, if needed.

Medical covers should be enhanced to the maximum permissible limits and any top-up plans, if available, should be considered.

Unit-linked pension plans can also be considered to supplement savings through other modes for retirement.

MATURE FAMILIES can look to adding whole-life policies to their portfolio in order to make provision towards any terminal medical expenses, funeral costs or for some compulsory dues to be paid on death.

Allocation for such expenses is not specifically made by individuals thus adding to the financial strain associated with death. Since whole-life policies eliminate the uncertainty factor with death, the policy proceeds can be utilised to meet these expenses.

PRE-RETIREES AND RETIREES should take great care to retain only whole-life policies and medical policies in their insurance portfolio. Situations where the individual would be required to pay insurance premiums, other than the ones mentioned, even beyond his retirement should be avoided. Immediate annuity policies may be considered by retired individuals to be included as a part of their retirement portfolio.

It is very important for individuals to review their insurance needs at different life stages with the help of their financial planner and carry out the necessary changes.

Weeding out outdated insurance policies can certainly bring a lot of cost-saving for individuals.

Hunting To Farming in AXA

Speaking at the group’s international media seminar at Chateau Suduiraut near Bordeaux, Mr de Castries told a delegation of European financial journalists that Axa was changing from “hunters to farmers” following a long period of acquisitions.

He claimed Axa’s human resources policies and strategies were now targetted at developing new talent within the company to sustain growth in mature and emerging markets, adding “we are in a people business, and people are our assets”.

Financial Adviser was the only UK publication present at the seminar, and heard how the company was focussing on organic growth, with a large emphasis on developing its digital proposition.

George Stansfield, Axa’s group general counsel and head of group human resources, said: “Our business model has largely remained the same for 200 years, but the world is changing with the digital revolution with multiple implications.

“This is an opportunity to re-skill our workforce. Digital distribution is a fundamental opportunity and challenge, and we are anticipating the shift in distribution over the coming years by identifying and retaining the company’s next generation of leaders.”

Mr de Castries added that Axa was in a war for talent with its competitors, and that they were the key for the future success of the company.

Elsewhere, in a far reaching analysis of the European and global economy, Mr de Castries said that Axa could weather any potential collapse of the eurozone in any of its territories, but claimed: “The prospect of Greece leaving the euro is not the scenario we anticipate.”

Evolving from Hunting to Farming in Malaysia
Traditional agency members of the life insurance industry continues to operate their business based on "HUNTER" model - requiring individual agent to aggressively "hunt" incessantly for victims to purchase life insurance. Individual Hunter are trained and pushed to generate high production, to qualify for awards and convention. Rewards and incentives are tailored to reward and favour individual hunter.

Unfortunately - high producer are rare and most challenging to recruit into life insurance industry. In addition, most high producer are short term unable to last or continue to repeat their success years after years. Most high producers even "cheated" by giving rebates to close cases, or bought cases from other agents and some even pay for renewals to be gain for award and recognition. Most high producer gain the award but remain poor in the industry.

Another business is to adopt the FARMER model - empowering agency members to recruit and develop talented entreprenur. A "Franchise" is being offerred to interested agency members that wish to open a chain of business cells nataionwide. New cells are trained and developed using standardize and proven processeses and procedures akin to McDonald, Kentucky etc business model.

Selling and individualism hero is scaled back while human development is encouraged and promoted under the Farming business model.
 







    

Sharia Insurance - Indonesia

The National Sharia Council, a quasi-government body that oversees the implementation of sharia economics, has given the green light for a set of standards proposed by the Indonesian Sharia Insurance Association (ASII) that will guide best practices in the life insurance sector.

ASII deputy chairman Srikandi Utami said the standards, which aim to harmonize practices that cover a variety of life insurance products, would be available for implementation as early as next month.

“For example, the standards will guide how a company should treat the tabarru funds [premiums] – whether they can be returned or not, whether a dispute settlement should be taken to the religious courts, and how underwriting surpluses are distributed,” Srikandi told reporters last week.

One thing the standards would not regulate was the price of sharia insurance premiums, according to ASII chairman Muhammad Saifie.

“The important thing is to make sure that sharia insurance companies behave appropriately by administering ideal prices, and not to slap them with a fixed price. That is why it is important to have actuaries,” he said, adding that all insurance companies should have their own actuaries by 2015.

The implementation of the standards would require all sharia insurance agents to pass a standardized test formulated by ASII in cooperation with the Indonesian Life Insurance Association (AJII) to increase the competency of sharia insurance agents in Indonesia.

According to Saifie, there are currently many conventional insurance agents who sell sharia insurance products, despite the vast differences between the two products.

He added that a lack of quality human resources was the main obstacle to sharia insurance’s growth in Indonesia, as well as a lack of public awareness and a lack of standardization among sharia insurance companies.

Indonesia is one of the world’s fastest growing sharia insurance markets, with gross premiums of Rp 4.97 trillion (US$536.76 million)last year, up tenfold from Rp 499 billion in 2006. Gross premiums are expected to grow by 30 percent this year.

The Capital Market and Financial Services Supervisory Agency (Bapepam-LK) is expecting sharia insurance market penetration to increase to 5 percent this year, up from 3.8 percent last year.

“AASI itself is aiming for a 5 percent market share by 2015, but since there are many companies wanting to enter the sharia insurance market this year, hopefully that target can be achieved much sooner,” said Bapepam-LK insurance bureau head Isa Rachmatarwata.

The Finance Ministry also issued PMK No. 11/2011 requiring sharia insurance companies to have risk-based capital of 15 percent this year, up from last year’s 5 percent minimum requirement. The minimum requirement will be upped again to 30 percent by the end of 2014. (han)

Life Insurance - 10 % Growth

The life insurance industry in Malaysia is expected to see a 10% growth in premiums this year, based on the regional economic growth, said  Bank Negara Malaysia assistant Governor Donald Joshua Jaganathan. 

 

He said on Monday that Asia was at the forefront of global economic growth, with projected GDP growth of between 7.3% and 7.9% in the next two years and this would bode well for the regional insurance market.

"The Life Insurance Association of Malaysia has projected that the local life insurance industry could grow up to 10% this year. The general insurance sector too, which is closely linked to the economy, is also expected to demonstrate strong growth," he said at the opening of the two-day International Claims Convention 2012.

"It has been forecast that premiums in emerging Asia could potentially grow 9.5% and 11.5% for the life and non-life market respectively," he said.

Jaganathan said a key driving factor of these trends was the large and growing middle-income population in the region with higher levels of disposable income and who are also financially literate.

Another important factor that would contribute to the growth of the insurance sector was demography, where some parts of the region would face an ageing population in years ahead, he said.

Insurance Fraud

Fraud and exaggerated claims are among the issues faced by insurance players which not only affect the claims process but also delay payment to customers, says the Malaysian Insurance Institute (MII).

Its senior vice-president (education and life insurance training), Mohd Taipor Suhadah, said continuous efforts were necessary to educate customers on their right to claims.

He said 60% of the total insurance claims of RM9.6 billion, made last year, came from the motor vehicle segment.

“We have detected many fraud and excessive claims coming from this segment,” he told a press conference after the launch of the International Claim Convention 2012 by assistant Bank Negara Malaysia governor Donald Joshua Jaganathan here today.

On industry’s growth, Taipor said there was a need for players to consolidate their presence in this market as the central bank had opened the doors to other foreign players.

“In order to remain competitive and able to compete with big international players, local players should enter into merger and acquisition exercises to enhance their capabilities in terms of work talent, product and services, as well as, boost their capital,” he added.

Earlier, in his speech, the assistant governor said that to ensure greater customer satisfaction, more efficient claims management were needed to enable claims to be processed in a timely manner.

“Claims management can achieve greater efficiency by ensuring excellence in operational management.

“An important objective of pursuing efficiency in claims management is its positive impact on profitability given that claims payments and associated costs were significant components of outflow for an insurer.

“Indeed, for some insurers, a reduction in claims costs of just 0.5% can result in an improvement in underwriting profits of up to 6%,” Donald added.