Life Insurance

AIA Being Sued: 3 Lessons About S’pore Insurance

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Ryan Ong

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Someone get a medal, because a local citizen’s found the heart to take AIA to court. She’s got my full support, which is nothing to sneeze at…assuming the judge’s decision is based on country singing and rock-paper-scissors. And that I’m allowed to stand in for her. What do you mean no? This is supposed to be a meritocracy! Well, I can still wish her the best of Singaporean luck. And also, highlight three important lessons we can learn here:

 

Benefits Illustration: How Insurers Hook Customers

It’s all over the papers. In 1993, Madam Zhu Yong Zhen bought a policy with an assured sum of $200,000. This after the insurance salesman gave her a benefits illustration.

That’s the spreadsheet on the insurance salesman’s computer; It shows the client’s projected benefits and premiums. It’s also got other names, like “insurance quotation” and “general fiction”.

According to the benefits illustration, Madam Zhu would only pay premiums for 16 years. After that, dividends from that period would give her whole life protection, until the age of 100. It never happened, and AIA suspended her policy in 2009.

In court, AIA’s lawyers argued that the benefits illustration is for illustrative purposes only. It does not have a contractual effect, or form part of the policy. But if that’s the case, what is the benefits illustration?

*The following passages refer to Singapore’s life insurance industry in general, and do not specifically refer to AIA

 

Insurance agent talking to couple
And also, science has proven that insured people will never die.

 

Lesson 1: The Benefits Illustration Is Somewhat Speculative

In finance, “somewhat speculative” not a desirable phrase.

It’s up there on the list of things you don’t want to hear, like “market collapse” and “I have no idea who you are, I never took your money.”

Think of the benefits illustrations as being between an advertisement and a financial statement. The numbers are not completely made up; but in 15 to 20 years, they may as well be.

Why?

 

Stock market bull
Because of bullsh…bull market reports. Yeah, that’s it.

 

Because insurers grow your money by investing it. Your actual benefits are based on how well those investments perform. They might be higher or lower than what the benefits illustration suggests.

An insurer might put your money in EM (emerging market) funds, which are less predictable than a 13 year old on Prozac. Or maybe they’ll invest it in developed markets, only to get hit by things like the Eurozone crisis.

Whatever the case, market conditions alter your eventual benefits. If we’re talking a period of five years, the benefits illustration is probably accurate. But at 10 or 15 years, the benefits illustration is as reliable as the average North Korean news report.

So to clarify: The benefits illustration is a projection of your benefits assuming things go as expected. The numbers are not made up; but neither are they guaranteed.

And the longer your investment, the less accurate those projections.

 

Lesson 2: The Numbers Are Hard To Justify

 

Stock Market Graph
Let’s look at this serious report, which I didn’t invent on Powerpoint this morning.

 

The world is full of mysteries we can’t answer. Like why did they build Stonehenge? Do aliens exist? And how are my insurance benefits justified?

Sure, you can try asking your agent. But you’ll get a burst of financial gibberish, followed by “We’re doing our best, have a free calendar”. Face it, any conversation with the agent may as well be in Swahili.

But wait, you still have a sense of the market going up or down. You can guess when it’s fair for your benefits to increase, right?

Think again. Your insurer can over-compensate. For example, they might lose $5 on a market slump, but respond by shaving $50 off your benefits. Same goes when the market improves. When things pick up, the insurer can make $50 on the market, but reward you with a measly $5.

 

Muppet toys from Happy Meal
After 15 years, you’ll be thrilled at the bonus benefits we got you.

 

Typically, insurers are quick to subtract when the market drops, and slow to credit when the market picks up.

Don’t like it? Good luck taking it to court. You haven’t the foggiest notion what the exact investments are, let alone their performance over 10 + years. Your only real defence is to cry “I didn’t know”, which quite frankly, is the legal equivalent of assaulting a tank with candy floss.

 

Lesson 3: Coverage, Not Investment

As Mr. Tan Kin Lian has often pointed out, insurance is okay as coverage, but not so hot for investment. If you want to grow your money, there are more transparent alternatives.

FISCA runs plenty of courses on ETF funds for investment. Or you can scout around for fixed and structured deposits (not too transparent either, but more consistent). While these options require more homework, the pay-off is better.

 

Smiling couple talking to salesman
Wow, you’re right! I’ll be thrilled at all that money once I’m dead!

 

Don’t take this to mean all insurers are objectively bad. While their salesmen are like those hyenas in The Lion King, insurers remain a fair choice for security. Coverage for death or permanent disability remains mostly reliable. But when it comes to growing your money, take everything they say with a grain of…with two huge frigging shakers of salt.

Image Credits:
alantankenghoe, Jerry Bunkers, Walter Rodriguez, YoTuT, Ursala Erdbeer

Have you ever been affected by deceptive insurance? Comment and let us know!

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.

  • Daniel Tan
  • C H Lim

    buying investment is only after your basic insurance coverage is taken care of
    and second in line should be some cash savings for emergency case
    only you have cover all these areas , then you may consider investment policy
    this is my advise for all people considering effecting a policy .
    Do not be taken for a ride by agents whom are zooming straight into investment plan
    this agents does not have your interests at heart ..think about it

    the choice is still in your hands

    Good Luck

  • Worm

    Today AIA had tried to scam me with this policy too and another type of policy. Same in the pc written Insurance quotation and as what you had written here. However it is auto generated now with few numbers key in his pc. They promised 2 minutes time but ended up 30 minutes, not wanting to let me and family go. They promised free gift but ended up acted ignorance if you did not buy. Finally they did not success convincing me to sign and they used free vouchers, free 40″ led tv,…. to attract me to immediately sign by saying today is last day offer.
    They kept saying everyone wants to buy from them also cannot, too busy with clients,…. many more lies stories that tell you that they are so popular. I did not buy from them AIA because I had a bad experience with my motorcar insurance AIA in 2007. The other car which was in the accident also belong to AIA. I had reported and did all the procedure to AIA to claim that party. But AIA came back with an unknown legal firm to claim from me for that party. I told them to claim from my insurance AIA too, which they should be doing too but AIA kept pestering me to pay that legal firm. I ended up ignoring them and they have no choice to pester me anymore after the case had expired.