Insurance agents are known for some highly aggressive sales tactics – they have to be, since the market for these products is highly competitive. That’s bad for consumers like you, because you could end up with decade long commitments that do very little for you. Here’s how to evade the more common sales tactics employed out there by agents.
1. The “high rate of returns” argument
This is the line every insurance agent is taught to push. Insurance policies tend to show returns of about 3% to 5% (for endowment) or 7% to 9% (for investment linked policies). The agent will explain that this is much higher than a bank’s fixed deposits, and that you will need a higher return to cope with inflation.
That happens to be true, and is also the reason why financial planning is so important for all of us. What the agent isn’t saying is that these returns are not guaranteed. And even if the returns achieved what the benefit illustration shows, you are getting a lot lesser than what the portfoilo return shows, especially if a policy has high distribution costs and commissions. For example, the investment portfolio may return 5% per annum but you will only be getting 3% per annum, once you factor in all these other costs.
The key is to compare. Insist on speaking to other agents and shopping around first – don’t focus on the returns, but on how much you are spending for the policy. Look beyond insurance products and consider other type of instruments such as the Singapore Savings Bonds, Exchange Traded Funds or even your CPF account.
2. Opening “commitment questions”
Many insurance agents will begin with questions like “Do you care about your family?” or “Do you feel it’s important to save?” This is a psychological tactic that has a powerful coercive effect.
If you say you do care about your family, or that you agree it’s important to save, you will want to be consistent with what you say. This makes it harder to object when you are asked to, say, secure your family’s future by buying the policy.
Remember that you are in a business conversation. You’re not talking to a friend, or trying to impress an acquaintance. You don’t need to justify your refusal to buy, regardless of whatever questions you may have answered earlier. If you feel pressured (and this tactic will usually make you feel pressured), just say you don’t like being cornered and walk away.
3. The retirement scare tactic
According to my insurance agent, fishing is going to be really expensive in the future
How much do you need to retire? Any insurance agent can work this out to be a ridiculous sum. With the power of speculative maths, a lifestyle involving kaya toast every morning and once-a-week fishing can require a few million dollars.
You shouldn’t rely on an insurance agent to guide you on how much you need to retire. You should work it out yourself, and stick to that figure. If you think you need S$4,000 a month until you’re 90, then have the agent work backward to get that figure. If you need S$2,000 a month, do the same. But you decide what you need to retire – don’t wait to be told the appropriate amount by some newspaper clippings that the agent brought along, and be led to a policy because of it.
4. Inventing scarcity value
Thinking of buying a Nespresso machine? Why not consider an ILP instead?
Some agents will tell you the premiums are lower because of promotional reasons (e.g. you’re lucky because this month the premiums are lower, but the promotion is ending before next month). Some agents may give out freebies, like luggage carriers, discount coupons or Takashimaya vouchers, as a limited time offer.
Don’t let this rush you into buying. Remember that if the policy is wrong for you, you could be losing thousands of dollars (hopefully not hundred of thousands) over the years. Small discounts on the premium, or a free coffee maker, will never be worth that loss.
5. Making you uncomfortable about backing out
With such high commission, it would be rude not to send a thank you note!
Insurance agents will never end on “So, do you want to buy?” They’ll end on “Sign this form”, or something else that assumes you have already agreed. The result of this is to make you feel uncomfortable about backing out. Should you insist on doing so, you will be told that you have a free look period, and cancel the policy with a single letter (within a period of time).
Later, you’ll get a thank you note from the agent explaining how you made their day. That is to make you feel guilty about backing out.
If you’re nice and hate confrontation (most people do), this tactic can trap you into a really bad deal. The key is to remember that this is a business deal and that you shouldn’t confuse a business deal with a social one. You are paying money for a service, and if you feel you were cornered into signing, just back out – don’t allow yourself to wonder on what the agent will think of you.
Never fall into the trap of overvaluing the agent’s opinion of you. It doesn’t matter. This is not a person you will take out for drinks or be best buddies with. Your insurance policy is about you: your financial security, peace of mind, and your aspirations.
Be a little self-centred and narcissistic when dealing with agents.
This article was contributed by SingSaver.com.sg.