It is no secret that we love life insurance. We have been running a website that educates the public about life insurance. Moreover, we have spent the last 3 years of our lives writing about it whereas some couples don’t even last more than 3 days!
Like old married couples who have days when they feel like murdering each other, we have our complaints about life insurance too. Despite what we do, it seems that insurance literacy still falls short. Coverage gap still exists. And there are many other practices in the industry that annoys us immensely.
So hear us out as we vent our frustration.
You may find yourself agreeing with us on some of them.
The Dirtiest Word in the Industry: Pre-existing Conditions.
The first complaint about Pre-Existing Conditions – the prefix “pre” is redundant. Things either exist or they do not – they cannot pre-exist!
Besides the semantics, Pre-existing conditions are the worst things you can write on your insurance proposal. You may have to pay a higher premium or the insurer may impose exclusions. Even worse, these two words may render you uninsurable.
What really annoys us is the fact that some people are un-insurable through no fault of theirs.
While there are instances whereby pre-existing conditions occur due to self-neglect, there are some who may be born with hereditary defects or have met with an unfortunate accident or ailments. Yet these innocent folks are denied the chance of being covered and have to spend their entire lives without a financial peace of mind.
On the other hand, an insurance company exists to make profits like any other corporate entities. It does not make any financial sense for an insurer to take in supposedly worse risks.
It appears that this problem cannot be cracked at all.
Commission-based system and its negative impacts.
We spoke to an industry practitioner on the same topic in our previous post.
What is worth repeating is that the commission based advisory system creates a horrible dilemma for everyone.
Financial advisors are placed in sticky situations where they have to make certain recommendations that lead to a sale as opposed to proper financial advice. After all, their pay cheques are dependent on sales and not the quality of their advice.
The commission-based system creates a moral dilemma for the consumers too. Knowing that their advisor does not get paid makes it hard for customers to walk away from a financial planning session without making a purchase.
At the same time, the commission model affects how the insurance companies operate. Since the insurers are paying good money, they count on the advisors to be the face of the company. This sets unhealthy expectations that we shall elaborate further next.
The commission based system may have its advantages but the misalignment of interests has been plaguing the industry for years.
Unreasonable burden levied on the Financial Advisors
Expanding on the previous point, financial advisors are expected to do everything for the insurance company. Let us do a quick run-down.
Educate the customers on insurance.
Understand the client’s financial needs.
Dispense proper financial advice.
Fill up proposal form and collect the premium.
Advise on claim procedure.
Apply for medical reports for claim purposes.
Collection & delivery of claim documents
The list goes on and on but the point that we are making is that financial advisors are supposed to be giving financial advice. That is his area of expertise. If we do not rely on a car salesman to repair our vehicles, why should we expect a financial advisor to handle our claims?
This is because Life insurance companies have delegated all consumer-related tasks to their agents. This should not be the way – we should still be able to contact the insurer directly for policy information. The insurance companies should be assigning professionals to tend to our claims, especially for complex cases.
Everyone expects the advisor to be able to play all sorts of roles and that is unhealthy. It is time for insurers to step up to the plate and deliver proper service to the customers directly.
Insurance scams are still happening
From Sally Low’s despicable act of selling non-existent policies to the recent revelation that MAS is taking up prohibition orders against 6 errant agents, insurance wrong-doings continue to be prevalent. This irks us as much as it worries us.
Life insurance is too good of a financial product to be tainted by such misconducts. These wrongful acts overshadow the good things that life insurance brings to the customers. We fear that the punishment meted to those misbehaving agents may be too lenient and too slow.
For misconducts that took place from 2009 to 2015, the prohibition order was reportedly only issued this year. Most of the errant agents are barred from insurance sales for 2 to 7 years without any other punitive measures. It has been seen by the public as a slap on the wrist.
As an effective deterrence to any advisor who has ill intentions, the regulator must impose more severe penalties. The punishment must be meted out quickly before more harm can be done. After all, white collar crimes like these are actually more damaging than the street equivalent.
Thankfully, things are improving
Medishield Life is a health insurance that does not discriminate against folks with pre-existing conditions by making everyone pay a little more. More insurers are creating products that are catered to a certain group of people who have chronic illnesses. We have reviewed two of such products and you can find them here and here.
From the looks of it, MAS is keen to move to a fee-based advisory model but changes are likely to take place much later due to the slow acceptance. Perhaps a hybrid model of fee-and-commission can work in the transition period.
As much as these little things annoy us, they do not turn us off.
We do what a good spouse does – to see beyond the shortcomings and appreciate the virtuous quality of the other half. We continue to see the good side of life insurance and how it has helped many families get back on their feet after a misfortune.
So thank you for listening to our grouses.
And may you continue to love us as much as we love insurance!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.