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We have covered criteria you can use to qualify a financial advisor in previous articles.
Here, we will share a few questions you can ask an agent directly about the policy they present you within a proposal.
You should now have met this prospective agent more than once. After building rapport and fact-finding with you, they will naturally look to establish a professional relationship; it’s their job!
There’re a few questions you should think about asking your agent. Mainly to better your understanding and determine if your agent recommends the policy based on your needs or based on their agenda.
Your agent should already have answered this question before you have to ask it. We have spoken to several experienced financial advisors here in Singapore. They unanimously agreed that providing adequate justification and reasoning is paramount in making a proposal, to leave you, as the prospective client, understanding the product's suitability. They will probably also try to create a sense of urgency about the importance of the policy for you. They may well be correct, but you should not feel pressured into acting.
But business tactics aside, let’s focus on you for a second. You need to have it in your mind that, regardless of your profession or expertise, it is likely the proposing agent who is more knowledgeable than you in this specific field. With that in mind, be open to what they have to say and then decide if their rationale is sound to you.
Policy Term ≠ Premium Payment Term!!
A simple concept, but one that is important to remember in insurance terminology.
There are certain plans, such as ILPs, where you pay as you go until you take a premium holiday or the policy concludes. If so, it will be spelt out accordingly. If not, certain policies such as endowments and whole life insurance policies have a “Limited Pay” term, meaning you pay for a set number of years (i.e. five, ten, fifteen years etc.) despite the policy term being a long period of time, or life.
In conclusion: Clarify in no uncertain terms the following:
Suppose you have not heard the term “Guaranteed Insurability Option (GIO)”. In that case, it is a rider found with certain insurance policies allowing you, as a policyholder, to renew a policy for a specific duration without any further medical underwriting.
In short, if they insure you the first time, they are obliged to insure you the second time regardless of adverse changes to your health.
This is most commonly found in a Term-Life insurance policy. Example:
Leo is a 32-year-old man in Singapore. He is buying Term Insurance to cover himself until age 52 (20 Years).
While he is healthy now, there is no guarantee he will have a clean bill of health at 52, should he want to be re-insured. His agent points out that the term policy comes with a Guaranteed Insurability Option (GIO) clause.
This gives Leo peace of mind, knowing he is guaranteed to be able to re-insure himself under the same policy with his insurer upon reaching age 52, should he choose to. (The amount premium will, of course, be different.)
This is a significant point that has been the dealbreaker for countless policy proposals. We will attempt to do it justice.
You wouldn’t think this is a common or relevant question, but it is far more prevalent and vital than you may think.
Increasing Premiums
Let’s say you could now take up a brand new investment policy or account. The premiums would be based on your affordability now, at your current income, with your current monthly revenue and expenses taken into account.
In a few years, when your income has (hopefully) increased, you may be looking at taking up a new investment policy. Alternatively, you may wish to contribute additional premiums to your existing one if you’ve liked the returns you have been seeing. You will only be able to do so if your policy allows you the flexibility to increase your contributions.
Decreasing Premiums
More importantly, should liquidity be an issue for you because of unexpected expenditures or a sudden lack of employment, let’s consider the opposite:
While many investment policies will happily allow an increase in premiums, the same cannot be said for decreasing premiums. This affects the ability of the underlying funds to continue to deliver the same level of returns to you as the investor.
90% of policies that allow a decrease in premiums during your policy term only allow this after a particular policy year, usually the 5th or the 10th policy anniversary. This is known as “taking a premium holiday”. Doing so before the stated year results may often result in a minor penalty charge.
In conclusion, whatever the specific case for premium alteration is regarding investment policies, be absolutely sure to clarify with your prospective agent whether you can increase or decrease your annual premiums before purchase.
In a way, this is more a question for you to ask yourself. Am I over-insuring myself by purchasing more of a policy I already have? Am I over-investing in a certain type of policy or product when I could be diversifying into something else?
Similar to a doctor referring to your patient records and medical history before prescribing any medication, a competent financial advisor will, at some point, ask you about your existing portfolio (from any insurance company) before making any formal recommendations.
On your part as the client, it is advisable to share everything with your agent in due time before purchasing anything for two reasons:
We all have that last bit of hesitation or uncertainty before “taking the leap”; Making a big purchase or an otherwise substantial decision. Often this is exacerbated by a lack of confidence in the decision. This can stem from a lack of clarity and assurance.
Help your financial advisor help you by going through this suggested checklist of questions to put your mind at ease about what may be your next policy. Financial planning is only difficult when it’s misunderstood. It can take a lot of unnecessary pressure and worry off of your shoulders when it's been demystified. Because ultimately, you should not feel any pressure to purchase one particular policy over another, regardless of how much time the financial advisor has spent with you. Whatever policies you end up with should leave you with peace of mind that you are covered and safe.
5 THINGS TO ASK ABOUT A POLICY PROPOSAL. COMPLETED. ✅
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