Go for the Best, why settle for anything Less? The question that follows, is what do we look for in order to find the ‘Best’?
The C word
If complaining is Singaporean’s no. 1 hobby, then comparing must surely be second. Then what should we be comparing when it comes to buying a policy? Many of us might compare the premium and the cash value, but that is actually just the tip of the iceberg. Let us now take a look at the 3 main considerations that we should compare, when it comes to buying a policy.
Performance of funds: Who are the one hit Wonders, and who are the consistent Winners?
Whole-life insurance and endowment (savings, education & retirement) policies are usually the most popular types of financial instruments. They are likely to be a participating (par) fund which provides both guaranteed and non-guaranteed benefits.
Par Funds
The better the par fund performs, the bigger the guaranteed benefits of a par policy. Only 3 out of 9 insurers delivered a 12-yr average return higher than 5%. But the consistency of the performance of an insurance company is also important. Suppose there is ABC insurer that consistently performs below XYZ insurer. But the average return of ABC insurer can end up being inaccurately inflated because of 1 or 2 particularly good years.
Hence both the average performance and the consistency of year-on-year performances of an insurer, should be assessed together for a clearer picture.
Non-guaranteed benefits: Who will over Promise, who can over Deliver?
Another important consideration is whether the insurer will be in a position to pay out future nonguaranteed bonuses. Projecting a high nonguaranteed bonus is one thing, actually delivering it is a whole different matter.
A good way to assess an insurer’s ability to deliver, is by looking at the size of its reserves ratio which is used to support these payouts. The higher the reserves ratio, the greater the likelihood that the insurer can deliver. In addition, insurers with higher reserves buffer, are also less likely to cut their bonus rate.
Your Financial Consultant, the most crucial piece of the puzzle
Self-praise is no praise. But in this case, it is honestly my opinion that the financial consultant you choose, is what matters the most. Here’s why. The top 3 issues I encounter when I review financial portfolios are:
Choose the right consultant!
Giving clients only what they want is like parents giving only candy to kids since all kids love candy. But good parents will also understand the importance of nutrition, and ensure that their kids eat their vegetables too. So there is little meaning in searching for the ‘best’ insurance company to buy from, if the agent is sub-standard. Many of my clients have heard me give this analogy before: Suppose you go to see a doctor because you have a fever. But the doctor gives you flu medication instead. Even if it is the best flu medication available, is that something you need? No, because you have a fever, not a flu.
Don’t keep me a secret!
Do you know of many insurance agents who personally write articles every month so as to value add to their clients? Do you know of many insurance agents who are proactive and pursue self-upgrading in related fields? Do you know of many insurance agents who actually walk the talk and have personal experience in amassing a comprehensive financial portfolio worth millions? I take great pride when I say that I’m a professional financial consultant, and I know that I’m much more than just an insurance agent.
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