Some Great Insurance Musings

I had an interesting experience at Great Eastern Life’s customer service centre today. The very pleasant personnel brought up the topic of “participating policies” which give dividends on top of your insurance coverage.

I asked her about the past average returns that such policies have given. She insisted that this “depends on performance”. But that’s not the point, is it? GE Life would surely have the numbers in the century or so that they’ve been doing business here, wouldn’t they?

More importantly, consumers who have to pay more premiums for such dividends need to compare it to, say, fixed deposit rates to see if it’s worthwhile to get into such policies. Why don’t insurance companies provide such return rates if they were so attractive?

The second topic was a brochure I received in the mail called the “Great Retirement Plan” which guarantees a yearly income for 10 years after age 60 as follows: 

Screen Shot 2017-06-08 at 2.14.31 PM

Again what stands out is that this ad doesn’t spell out what the return rates are. I was curious and worked it out myself; if my usage of spreadsheet formulas is correct this product gives returns of between 3.5-3.9%. This compares with short term Malaysian fixed deposit rates of 3-3.5%. Is this a product that you would buy into?

It doesn’t end there. Malaysian Govt Securities and AAA corporate bonds of similar tenures (15-25 years) are paying 4.25-5.5%. If you don’t think that the Malaysian govt or Petronas or Maybank or Tenaga are going to go belly up (I know a few out there who do) would these also be viable investments to outperform GE’s guarantee? It would, in fact, be a great idea for GE to invest premiums received in such high-quality bonds, hold them to maturity to avoid trading losses and pay off guarantees of 3.5-3.9%.

Point of interest no.3: fintechs or insuretechs and any other “techs” that will emerge – thank goodness for them. I have a GE Life term policy case study with the following details:

Death, critical illness and total permanent disability coverage – RM500k
Yearly premium – RM5k
Current surrender value RM16k
Expiry: 6 years time

This means that this policyholder would have to pay premiums of RM30k over the next 6 years to continue with the policy.

Here are details for an insuretech alternative:

Death, CI and 25% TPD – 500k
Premiums for next 6 years: RM26k

The savings from going with the insuretech option is:
+Surrender value
+ Savings on old premiums
+ interest earned on unused surrender value
-new premiums

Hence, 16k + 30k + 1.5k – 26k = RM21.5k in total savings.

Of course, there is the fine print eg the insuretech option gives only 25% of sum assured for critical illness, but still, RM21k in savings… isn’t it a very compelling food for thought?

6 thoughts on “Some Great Insurance Musings”

  1. Hi Julian,

    Nice article. Would be also elaborate your opinion on medical coverage in the industry nowadays? Those salesman usually give figures that are too good to be true.

    Miss you on the morning run though 😛

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    1. David thanks for your kind words. In the absence of more details I need to know what you mean by medical. If you’re talking about serious diseases that’s usually a ‘critical illness’ rider under your life policy. This is to try to cover you and your loved ones as much as possible should you be incapacitated or pass on. Given that the sky is the limit for coverage, the sufficiency of CI coverage is a balance between affordability and how much shortfall you’re willing to bear in an untoward event.

      The other medical coverage is that of normal medical care and hospitalisation. The same principle of balance between pain and comfort applies. If affordability is an issue I would just give up the deluxe room and settle for a no-frills version.

      In conclusion you should get both a life and medical care coverage. Do talk to a financial planner to work out what you need.

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  2. Thanks Julian for highlighting this. Alot of us buyinto insurance polices such as Life Insurance policies because of the fear that we may not have enough should anything untoward happen. But the premiums we are paying are ridiculously expensive. We have depended on the advice of insurance agents who are usually friends or family members who may not have our best interest at heart.

    I’m right now contemplating increasing my family insurance policies but not sure what is reasonable coverage.
    A post of coverage and types of insurance policies (investment linked, etc) would be very helpfull.

    Btw, missing you on The Morning Run.

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  3. Other popular financial website like iMoney are doing more of a generic analysis, which i think contribute very little to the actual case.
    Keep it up Julian, your work is very important in educating people like us who have a very little knowledge of financial revolving Malaysia. Thanks you!

    Like

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