Seth’s Blog on Finance

Leaving You Underinsured Creates Repeat Business

Imagine having a doctor who purposefully does not treat you completely such that you would constantly remain sick, thus having to visit the doctor repeatedly, each time paying for his services and medication. I am not familiar with the medical fraternity in Singapore and I trust that most doctors do their jobs ethically, but I know for a fact that the local financial industry thrives on this unethical practice.

I recently met a client who bought an investment-linked policy recommended to her by her friend which provided poor coverage while being taxing on her monthly budgeting.

What’s sad was what the agent wrote in the point-of-sale documents to justify the sale of the policy – an ostensibly apologetic “client to increase coverage when financially better”. It shows that the agent was fully aware that such a policy underinsures her client and yet deemed it fit to recommend her friend the policy. It is particularly upsetting since the client had specifically indicated her concern was (quite rightfully, for her profile) insurance coverage with her limited budget.

Selling costly and unsuitable products is very lucrative. The commission, bonuses and incentive trips are already attractive; the side effect of their clients being underinsured and having to purchase insurance again makes it even sweeter for sales – it creates opportunities for repeat business. Herein lies the incentive for agents to continue giving bad advice.

Implications Can Be Severe

They are not concerned if something happens to you while being underinsured, nor the fact that your insurability likely decreases with age. They do not care that your financial obligations will increase in the near future when you buy a home or start a family which leaves you with little budget to afford their expensive policies. They do not bother with that fact that selling you that policy takes up all your excess budget, preventing you from being adequately insured with better solutions like the client I have just mentioned. All they have to do is to write a few lines of justifications in the point-of-sale document as if it is perfectly reasonable to leave you underinsured, and each year they’ll have yet another excuse to get you to “top-up” on your perpetually inadequate insurance coverage.

The other sad possibility is that they do indeed care for their clients, but they are simply not properly trained nor able to provide proper advice given the sales nature of their jobs and the companies they represent.

There Are Appropriate Solutions Available

The truth is that there is an appropriate insurance strategy to be taken to address each person’s insurance needs properly. I have a client with a special needs sibling who is dependent on him. I calculated a need for $600,000 in death coverage for him and solved it within his budget. Another client had a newborn and he thought that he should get a small amount of life coverage because he thought it was “expensive”. I calculated the shortfall he required and got him decreasing coverage of $500,000 at a premium rate which I think is cheaper than what most people pay for phone bills nowadays.

Many tied agents cannot even access most of the better solutions, but that is no excuse, as they can always do what I did and leave their agencies. However, who would want to give up thousands of dollars in recurring income to earn a pittance selling ethical solutions? Those who do join financial advisory firms do so because they can now recommend products that give more attractive commissions.

Do Something

I am personally sick and tired of “practitioners” who sell rubbish products and get rewarded with not just money but also promotions and incentive trips. I see them everywhere – at McDonald’s, outside shopping malls etc. trying to close sales, and on social networking sites like Facebook showing off their new car, trip to Spain etc.

This is why I am organising a seminar near the end of this month. There are a few spots left; if you are concerned about your own financial well-being I would urge you to sign up.