I find the reward programs operated by many businesses, i.e. banks, telcos, to be wasteful:
* they cost a lot of money to operate
* is quite complicated
* incurs a lot of printing and mailing cost
* give little value to their customers
I prefer that these businesses reward their customers in a simpler way:
* accumulate the amount of credits
* give them a cash rebate, based on the credit, at the end of the year
I hope that they can reduce cost, and give better benefit to their customers.
Wednesday, July 25, 2007
Critical Illness Insurance
There is a news report that it may take several months for the insurance company to decide on a critical illness claim.
If you have to make a claim under different policies taken with several insurance companies, you have to complete a different claim form (with a medical report) for each company. They have not adopted a standard claim form.
Why is this the case?
For most of the 30 critical illnesses covered under the policy, it is quite difficult to define clearly the medical condition that is covered by the policy.
This uncertainly creates the following problems:
* delay in approving a claim
* dispute (if the claim is rejected)
This problem is made worse by the following:
* many people over-insure on the amount of critical illness cover
* the cost of this cover is much higher than life insurance
* insurance agents exaggerate the cost of treating these illness, and the frequency of these events
* the agents tend to over-sell on the amount of this cover (and enjoy a higher commission)
* the claim rate is not clear; so insurers charge a higher premium to cover the uncertainty
With this uncertainty and higher cost, it is not advisable for the policyholder to over-insure on critical illness. In my view, a cover of $50,000 or at most $100,000 is sufficient for most people. The remaining cover should be taken under a term insurance plan.
If you have to make a claim under different policies taken with several insurance companies, you have to complete a different claim form (with a medical report) for each company. They have not adopted a standard claim form.
Why is this the case?
For most of the 30 critical illnesses covered under the policy, it is quite difficult to define clearly the medical condition that is covered by the policy.
This uncertainly creates the following problems:
* delay in approving a claim
* dispute (if the claim is rejected)
This problem is made worse by the following:
* many people over-insure on the amount of critical illness cover
* the cost of this cover is much higher than life insurance
* insurance agents exaggerate the cost of treating these illness, and the frequency of these events
* the agents tend to over-sell on the amount of this cover (and enjoy a higher commission)
* the claim rate is not clear; so insurers charge a higher premium to cover the uncertainty
With this uncertainty and higher cost, it is not advisable for the policyholder to over-insure on critical illness. In my view, a cover of $50,000 or at most $100,000 is sufficient for most people. The remaining cover should be taken under a term insurance plan.
Keep your existing policy
Hi Mr Tan,
I'm 30 years old. I bought my ILP from X in 2002. I'm about to break even in approximately 6 months, if the investment portfolios perform as they are today.
The cost of this policy is very high, but I relized this fact too late. I'm thinking whether to stop this plan after I break even, and switch to a non-ILP life insurance instead. Could you give your opinion on this? Could you suggest other alternatives?
REPLY:
You have already incurred a heavy cost during the past five years. This cost has already been taken away from your policy. Going forward, the cost could be much lower.
I suggest that you talk to your insurance adviser and find out about the future cost. If it is quite small, it may be better for you to continue the existing policy.
Note: It is quite sad that the high charges have deprived you of the opportunity to earn a great return during the past five years. This kind of opportunity comes once in a decade!
For your future purchase, it is better to avoid any insurance policy that has a high cost during the initial years.
I'm 30 years old. I bought my ILP from X in 2002. I'm about to break even in approximately 6 months, if the investment portfolios perform as they are today.
The cost of this policy is very high, but I relized this fact too late. I'm thinking whether to stop this plan after I break even, and switch to a non-ILP life insurance instead. Could you give your opinion on this? Could you suggest other alternatives?
REPLY:
You have already incurred a heavy cost during the past five years. This cost has already been taken away from your policy. Going forward, the cost could be much lower.
I suggest that you talk to your insurance adviser and find out about the future cost. If it is quite small, it may be better for you to continue the existing policy.
Note: It is quite sad that the high charges have deprived you of the opportunity to earn a great return during the past five years. This kind of opportunity comes once in a decade!
For your future purchase, it is better to avoid any insurance policy that has a high cost during the initial years.
Limited premium policy
Many people like the concept of an insurance policy that provides cover for a lifetime, but require the premium to be paid for a limited period (say 20 years).
However, they find the premium to be quite high.
Here is an example of a 20 year limited payment policy that covers $100,000 for a lifetime. This policy earns bonus.
For a male aged 30, the annual premium is $2,948. The projected cash value at the end of 20 years (inclusive of bonus) is $82,510. The projected yield is 3.1%.
This is based on the current rate of bonus. If the bonus rate increases, the yield will be higher. If it reduces, the yield will be lower.
Most insurance companies offer a lower yield than the above example. Their limited payment policies is not attractive.
It is better for the policyholder to buy a term insurance and invest the difference in a low cost, well diversified equity fund. The yield should be much higher.
However, they find the premium to be quite high.
Here is an example of a 20 year limited payment policy that covers $100,000 for a lifetime. This policy earns bonus.
For a male aged 30, the annual premium is $2,948. The projected cash value at the end of 20 years (inclusive of bonus) is $82,510. The projected yield is 3.1%.
This is based on the current rate of bonus. If the bonus rate increases, the yield will be higher. If it reduces, the yield will be lower.
Most insurance companies offer a lower yield than the above example. Their limited payment policies is not attractive.
It is better for the policyholder to buy a term insurance and invest the difference in a low cost, well diversified equity fund. The yield should be much higher.
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