Case Study: Mis-selling

In this article, we want to bring to your attention that there is a certain amount of mis-selling going on the insurance industry. And the easy prey are most likely your parents and grandparents.

Below is a frightening example of how these plans are marketed by the darker side of the insurance industry, and if your parents or grandparents are the target of such tactics, you can step in and make a difference by saying “no”.

The only way you can step in to make sure you and your relatives are not being taken advantage of is to be educated. Before we go into the case study, here is a link of how endowment plans work. We think endowment plans may have its benefits, but generally, DollarsAndSense do not like it and will probably not be purchasing it any time soon.

Case Study:

Retiree walks into a bank and wishes to renew a fixed deposit, and withdraw the interest. He (or she) is 63 years old, Chinese educated, doesn’t understand much English. The friendly counter staff processes the transaction, and invites a sales staff to assist (depending on the bank, they are known by many names).

These sales staff usually use the same opening tactic: A S$50k fixed deposit only gives you x% of interest, client hasn’t taken out the money since 5 years ago. So, if client places the money in this plan, at y%, client gets more. Plus, client can split up the money in 5 payments, need not pay for the next 5 years, yet continue to earn interest. End of 10 years, get everything back.

The above example is an example of breaking a S$50k fixed deposit into a limited pay endowment policy: pay $10k every year for 5 years, then get a lump sum at the end of 10 years. Different companies have different permutations of this plan.

Question is, client is already 63. Would you ask your grandparents to lock up their money for 10 years? Even if we live with our grandparents, assuming we bring them out for meals, take care of their lodging, their financial needs; that S$50k is still their money. As an educated relative, let them understand that the plan is a 10 year (or 12, or 15 year based on the exact deal) commitment, after the 10 years, they will be 73 (or Z age), and they might not be able to spend it on luxury items such as traveling, eating at restaurants, etc because of health issues.

Worst of all, “risk” are somtimes not explained. A fixed deposit is generally safer than an endowment plan and hence the returns are lower. The salesperson, in their eagerness to meet sales targets, may have conveniently missed this out. We are not saying all financial salespeople are like that, but there are definitely some bad eggs in the industry.

End of the day, it’s always “buyers beware” when it comes to the insurance industry. Which is a terrible way to think about it. Understand the full picture, and then decide on the best plans for yourself and your family members. Remember there’s the 14-day free look period if you want to reconsider the plan. And if you’re not happy with it after purchasing it, you have a right to back out.

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