Smart Advice In Life

There may be a cancer eating away at your life insurance policy, causing it to die before you do!

If you have a "investment-linked or universal life" policy -- one with flexible premiums and/or investment choices within the policy -- the insurance industry is taking a bigger bite out of the cash build-up that was forecast to keep your policy intact until your death.

In the 1990s, the life industry created flexible premium adjustable life (commonly referred to as investment-linked and universal life). An army of insurance salesmen offered "illustrations" (importantly, not promises) of how the money inside the policy would grow such that it could be used to support your policy without further premiums in your old age, after you retired.

Years ago, I started warning people that their policies could "lapse" or require much higher premiums because they were not performing as illustrated. Interest rates dropped so much that the carriers were paying only the guaranteed minimum of 3 or 4 percent, not the 10 to 20 percent that had been illustrated.

Now there's another challenge to life insurance policies. Interest rates have stayed low far longer than predicted, hitting insurance company investment returns. So now the insurers are raising something called the "cost of insurance" -- or mortality charge -- even at a time when true mortality costs are actually dropping as people live longer. Some insurance companies are increasing these annual charges against your policy by 50 percent or more in order to maintain their profits.

Here are five things to ask your agent about your policy right now -- while you still can adjust your premiums to make up for the rising costs:

1. Ask your agent (or any agent) for an official "sales illustration" based on current mortality charges and guaranteed minimum interest rates. That's the form that shows you the true internal condition of your policy.

2. Ask if your policy has a "no lapse" guarantee -- meaning that it is guaranteed to last as long as you do, if you keep paying the premiums. If it does, ask if you are on track or behind the cumulative no-lapse premiums required. If you're behind, ask if the policy has a "catch-up" provision, and what it would cost to catch up.

3. Ask whether, if you keep paying the same premiums, the policy will remain in effect to age 100 (or even beyond), based on the current costs and the possibility of rising mortality expenses being deducted each year.

4. Ask how long -- if you keep paying the same premiums -- the policy will last based upon the combination of current assumptions, as well as the guaranteed minimum interest rate, and the policy's maximum allowed deductions for mortality and expenses. You may be in for a shock, unless you have a no-lapse guarantee.

5. Ask how much more you likely have to pay in premiums, and for how many years, to keep the policy active until age 100 or longer. Get answers based on both the current assumptions and the guarantees.

These questions are basically the way to figure out if your life insurance policy will last your lifetime. Know the difference between "illustrations" based on "current assumptions" and absolute guarantees. You want to be sure you don't suddenly have to start paying higher premiums down the road to keep this policy intact. Sometimes (not always) it might be better to switch to a different policy with better guarantees now -- if you're still insurable.

Murder For Life Proceeds

A former police chief in South Dakota charged with killing his pregnant fiance in a shooting that long appeared to be a hunting accident helped take out more than $750,000 in life insurance policies on her months before she died. Prosecutors in Russell Bertram's case want to present evidence of the policies and alleged past insurance fraud during the trial. Bertram, 64, has pleaded not guilty to first-degree murder. He was indicted in September for the 2009 killing of Leonila Stickney, who was his 26-year-old fiancée. 

Smart Life

Choose Your Preferred Contact Point
Deal only with agents registered with the Life Insurance Association of Malaysia or Malaysian Takaful Association, approved insurance/takaful brokers, approved financial advisers, bancassurance/bancatakaful staff or directly with insurance companies/takaful operators. Some plans are available online.

Be A Smart Consumer
Shop around. The product must meet your needs (type and coverage amount). Never make “as a favour” purchases. Know what you’re buying. Compare the premium/contribution payable and the level of cover. Prices may differ due to differences in coverage. Understand the differences so that you can compare and make an informed decision.

Ensure that a copy of the product disclosure sheet is given before making a purchase. The sheet contains key features of the product, premium/contribution payable, key terms and conditions, major exclusions under the policy/certificate and important notices on the product. Ask if unclear.

Read The Fine Print
Answer all questions in the proposal/application form accurately. Don’t sign a blank proposal form and allow the intermediary to complete the information. If the answer given is inaccurate, your claim may be rejected or not fully paid out, the terms of the policy may be changed, or the policy may be terminated.

Read your policy/certificate when you receive it from the insurance company/takaful operator. For life insurance/family takaful and medical and health insurance/takaful products, you have 15 days to return the policy/certificate. A refund (less expenses incurred for the medical examination) will be given.

Know what’s covered and what’s not. Watch out for benefit limitations and exclusion clauses, premium/contribution amount (including future revision of premiums/contributions), risks associated with the product, policy terms and conditions, and period of coverage.

Consider Your Income And determine Your Needs
The primary purpose of life insurance is to make sure your dependents are able to maintain their current lifestyle after you are gone. If you have young children and a significant amount of liabilities, you should have more coverage compared with someone who doesn’t have much debt and whose spouse is working.

Ensure that the premium/contribution payable is affordable throughout the duration of the policy, including any future increase. Review your coverage at least once a year as needs and priorities change. This ensures that you’re always adequately insured.

LIFE Framework 2018

Consumers know insurance is a must but protection for some is just too pricey. Nurse Jamie Chin, 24, doesn’t have coverage but has been thinking about it a lot. She graduated a year ago, but with a salary of less than RM2,000 a month, she just doesn’t have enough for insurance. I work in a private hospital. I know how expensive treatment is. Insurance premiums are also going up.

Clerk S. Maria, 35, says her husband buys basic insurance for the family but admits that she doesn’t know what it covers. Something is better than nothing,” she says, adding that if the premiums increase a lot, they won’t be able to continue paying.

Insurance agents are worried that the proposed “LIFE Framework” could push insurance further out of reach for consumers. Already reeling from the 6% Goods and Services Tax for medical and health-related coverage, Agent fears “profit-minded” insurers will again hike up the premiums soon.

Allowing the free market to determine the commission of agents is a good move but it mustn’t be used as a reason to make consu­mers pay more for coverage. Now, agents’ commissions are capped. By 2018, LIFE Framework will be fully rolled out and the industry will be open like Singapore. Our commissions will be determined by the market. This is fair and timely but Bank Negara must ensure that premiums are affordable or the central bank’s goal to increase penetration will fail. The perception that agents are rich because they drive big cars is wrong.

Agents claimed that - half of an agent’s income is used to cover the costs of meeting prospective clients and follow-ups. Agents are not greedy but they must be better compensated for their work. Often, an agent see 10 people in a day but only make one sale. Yes, some agents go around in luxury cars and nice suits but this investment is necessary to grow our business.

Many Agent claimed that buying insurance online will lead to cheaper premiums because Malaysians still prefer the human touch. You can buy insurance online but who is going to chase for your claims? Premium prices go up because of rising medical costs and profit-driven companies. Agents aren’t the cause.

Most people buy what the agents propose and some agents tend to push products with higher commission earnings, Federation of Malaysian Consumers Association secretary­general Datuk Paul Selvaraj observes.

Insurance is a complex product. Investment is an add-on benefit of certain policies. It’s cheaper if you are only getting a protection policy. If you want to know about investment, talk to an expert. Let’s be clear – insurance is to protect you.

In 2014, the highest number of reports received by the National Consumer Complaints Centre was about online purchases. So Bank Negara must monitor all online transactions closely. We cannot have a situation where someone who buys insurance online is denied a claim because of a technical glitch.

Insurance agents don’t know the details of your financial situation. There may be a mismatch between what is needed and what is bought. A financial adviser will take into account factors like the assets available and dependants’ needs to calculate how much insurance is needed and the various investment options available according to the budget.

Life Is About Trust

Malaysia insurance and takaful penetration rate is up four-fold from 11% in 1988 to 56% today, and the total paid-up capital of direct insurers has grown 12-fold from RM635mil to RM8bil over the same period, says Datuk Muhammad Ibrahim, Bank Negara Deputy Governor.

The Asia Pacific region, he adds, is also expected to be a strong driver of world insurance growth, with its share of the global insurance market likely to rise to 40% in the next five years.

To achieve the country’s targeted penetration rate of 75% by 2020, concerted and urgent actions are needed, he says, stressing that building trust is one of those actions that is vital.

Citing a global study, Muhammad Ibrahim says only 40% of respondents trust the insurance industry – the lowest ranked among 13 other business sectors. And a recent survey found that while consumers were given key information, the presentation was lengthy, with excessive information and technical or legal jargon that was difficult to grasp. There was also a bias in highlighting the benefits of a product by sales agents, while risks and costs were not adequately explained, he reports.

So effective disclosure by insurers is important, he says, as consumers require essential information about the main features and risks of financial products offered. The Bank is concerned with these findings and will act on them. We’ll also work with key stakeholders to increase public awareness of the importance of reading and understanding product disclosure materials and financial agreements,” he says, adding that a comprehensive review of the mandatory disclosure regime will be conducted soon.

The level of trust in the industry must be increased, he says, by:

Strengthening the capacity to fulfil ­objectives
Issues like fraud, theft, lingering court claims and settlement delays, if unresolved, dent the industry’s image. High-calibre leaders supported by a flexible and adaptable team is needed.

Refraining from making false promises and making clear the terms and ­conditions up front
Many consumers are not well versed with insurance and takaful terminology and will rely on agents’ advice. Agents must refrain from only disclosing favourable terms. And providing untruthful information is ­unacceptable. Trust goes when claims aren’t honoured.

Offering customised solutions that meet consumer needs
Meet changing individual needs and risk appetites. Marketing strategies must shift from product-push to an advisory model. Better service is needed.

Evolving with customer’s preferences and assisting them to make decisions
The industry must understand changing ­preferences and promote responsible consumer behaviour through education and awareness.

Balancing profitability with customer needs
Don’t be fixated solely on profits. Invest in relationships with customers.

Regularly benchmarking against the best
The industry must collaborate and develop its own indicators benchmarked against the world’s best.

Collaborating with others
Synergy creates new values and a multiplier effect on outcomes. Collaboration within the industry is important to drive efficiency and move towards a more competitive market that benefits consumers.

Bank Negara, Muhammad Ibrahim assures, will enforce regulatory requirements of fair consumer conduct. Besides private and public reprimands, the Bank can direct insurers to make restitution to the aggrieved parties, he says.

As a result of supervisory interventions by the Bank, more than RM30mil in premiums were refunded to affected policy-holders due to mis-selling practices in the sale of life insurance products in the past, he says.

The Bank has also directed insurers to refund the premiums in more than 700,000 cases involving the forced purchase of personal accident policies, he says.

And insurers were even directed to modify or withdraw misleading advertisements, make call backs to consumers to confirm products purchased without adherence to proper disclosure practices, and strengthen internal controls over sales and marketing practices.

These measures signal the Bank’s low ­tolerance for misconduct.

It also serves to remind the industry of the Bank’s expectation for common complaints and grouses such as delay in claim settlement and mis-selling practices by agents, to be eliminated or at the very least, reduced significantly.

Not Enough Life

Malaysian are grossly under-insured. And those who have insurance aren’t adequately covered.
But offering policies with higher sums assured won’t work because life insurance is not a priority for most Malaysians.

The younger generation especially would rather spend their money on smart phones and luxury goods – which actually are way pricier than insurance payments. A life policy can cost as little as RM100 a month. No one has ever gone bankrupt because they bought insurance. So not having enough money is a poor excuse.

Among those who have insurance, the protection gap keeps widening because they’re reluctant to review their policies. They think agents just want to make a sale. But the reality is that with rising healthcare costs and changes in your dependants’ needs, more protection is a must.

The “2013 Protection Gap in Malaysia” [study by Life Insurance Association of Malaysia (Liam)] indicated that four to five of every 10 Malaysians don’t have life insurance. And those who do have some don’t have sufficient coverage for their loved ones.

When you buy a life insurance policy, the rule of thumb is to insure a sum equivalent to 5 to 10 times your annual salary. With Malaysia’s gross income per capita of RM32,000, the current average sum assured of RM50,000 is far below the ideal amount one should be insured for. This means that Malaysians are generally unprepared for rainy days. Imagine if something unfortunate were to happen to the family’s breadwinner and they’re only left with a RM50,000 life insurance policy. Today, RM50,000 will not get the family very far. They may have difficulties sustaining their current standard of living.

There’s a growing demand for insurance products with savings and investment elements but the level of awareness among Malaysians about protection is low. Our ­premium contribution is only 3.1% of the GDP in 2014 – much lower than Taiwan (15.6%), Hong Kong (12.7%), Japan (8.4%), and Singapore (5%), according to Bank Negara.

Currently, most consumers buy life insurance or family takaful products through an intermediary like an agent. But there are those who are financially literate and savvy enough not to need financial advice or product recommendation. Online products will then appeal to them with straight-forward, easy to understand, and solely for protection products.

Like online banking, an online account will be introduced by all insurers and takaful operators for policy owners and takaful participants to obtain information on the status of their policies and certificates, and get real-time updates and downloadable transaction forms easily.

With the Framework, insurers and operators will have greater flexibility to manage their expenses. This encourages product innovation and is beneficial to consumers. The industry, however, must continue to safeguard con­sumer interests in this more liberalised environment, according to the Bank’s statement. For example, in the case of investment-linked products, they must ensure a proportion of premium contribution is allocated to the unit funds, before deduction of charges.

Unlike in other countries where consu­mers ask: ‘How much will the family get when I die?’, Malaysians want to know how much they will get back from the policy before they die.

Who Is Waliuddin Chua

“I just love doughnuts, that’s why I want others to enjoy them as I do”.

Waliuddin Chua, 24, who started selling doughnuts earlier this month, has become an online sensation after his story went viral on Facebook. The graphic designer decided to sell doughnuts at an affordable price after seeing a family with young children looking at the sweet treats at a shop but  could not afford them.

“I really love doughnuts and I want people to enjoy it as much as I do, but at a cheaper and affordable price. My intention is to help them fill their bellies and put a smile on their faces.” Waliuddin, who lives in Taman Maluri, was selling from a makeshift stall located outside a flat in the area.

Despite the popularity of his doughnuts, Waliuddin is not looking to make a big profit.
He said some customers would donate sugar and flour to help him cover the costs for making the doughnuts. They also gave us an extra ringgit or two as an act of generosity. I usually make RM4 for every 100 doughnuts sold. I do have a little bit of profit, but it’s not that much.