Thursday, February 18, 2010

Insurance agents serve themselves first

Knowing the importance of insurance for protection is a start. Knowing what kinds of insurance to buy is the difficult part. The first insurance product I bought was a bad buy for me. Having zero knowledge, I was totally reliant on the insurance agent who was not incentivized to give good advice. He was paid on commission. Therefore, he will sell what pays him the most commission which may not be a suitable product for me. In fact, it probably will not be a good deal for me because the high commission will be priced into the insurance plan.

It is hard to blame the insurance agent. But I certainly blame the incentives that drove him to the bad behavior. He has to earn a living after all. I would have done the same if I were in his place.

My objective of buying insurance is purely protection. Insurance plans that mixes investment or saving with protection are not suitable buys for me because they substantially raise the premium. To maximize protection for each dollar spent, I should have bought term insurance plans instead of the whole-life plan (my first buy). Term insurance holds another advantage for a know-nothing like me then. If I had made the wrong choice (likely if one knows nothing), I can cancel the plan and go for another one without incurring penalty charges. Not so for the whole-life plan. I wanted to cancel that plan in 2008 when there was a "bank run" on AIA(subsidiary of AIG) in Singapore. I end up still paying for the whole-life plan to avoid heavy losses which I will incur upon cancellation.

I am not dismissing the whole-life or endowment plans. One thing bad about term plans is that they become more expensive when you grow old and stop at a certain age. Not so for the whole-life plans.

However, I will consider them if there is spare money left in my budget after I am covered with adequate protection from the term plans. This is especially important for people like me with limited budgets.

Based on my mistakes, this is how I would advise those who are getting started with insurance. Buy term plans to ensure adequate protection first. If there is spare money left in the budget, then consider the more expensive plans. Otherwise, you end up paying a lot and still suffer from inadequate protection. This is a not an uncommon problem given the combination of insurance agents without the right incentives to sell suitable policies and ignorant buyers who provide a ready pool of suckers (which I hope this post can reduce).


  1. Obtaining your insurance license is not an easy task but you can complete it in just a few minutes thanks to licensing exam providers who offer courses online that are approved and accredited by certification bodies. Other than its self-paced learning framework, you can also take it anywhere you want at your preferred time. For example, you are currently in Texas and wanting to get licensed in Georgia then you don’t need to go there to enroll in a local school or a licensing body. What you only need is to seatback with the convenience of your home and take your Georgia insurance pre-licensing exam at ease.

  2. Hi Hyom,

    Would you mind to share the information on which package of term insurance you would suggest the best? And the company as well?

    I am looking in the same direction as you, ie: to cancel my life plan and to shift to term plan..

    Thanks in advance =D