It seems so easy to be an insurance agent in Singapore. Seriously. Why else would there be just so many of them? I bet that you’re related to at least two, and if your ex-colleague calls you and asks you out suddenly for coffee, you’re probably wondering if they recently made a switch in career. In fact, the phrase “insurance agent” has become such a stigma that they’re now calling themselves the more politically correct terms like “financial advisors”, “life planners” or “life consultants”.
But in all seriousness, insurance is important and so are the agents that advise you on what to sign up for. It really is in your best interests to be properly covered for whatever might happen to you, especially if it’s an illness or an accident that would cause you to become a financial liability to your loved ones.
A good insurance agent should sell you the best policy that is both within your means and yet can also cover you should anything serious happen to you. But being an insurance agent is a job, after all, and because it’s commission-based, you should be aware just how much of the policy premium you’re paying for is actually going into their pocket.
Wait, wait, wait… you’re going to reveal the insurance agent commission rates? Isn’t that supposed to be a secret?
Firstly, we’re not going to reveal exactly how much each insurance company is paying their agents. That is not public knowledge for a reason, and anyway, they get updated relatively often each year. However, what we will reveal is the general market range for commissions. Secondly, the fact that there are so many insurance agents (and former insurance agents!) in Singapore means that this is probably one of the worst-kept secrets.
Here, we rank the products by type from the highest commissions earned in terms of percentage to the lowest.
|Product||Basic Commission as a percentage of:|
|First Year Premium||Second Year Premium||Third Year Premium||Fourth Year Premium||Fifth Year Premium|
|ParticipatingPolicies of 20 years or more||35% – 50%||10% – 20%||5%||3% – 5%||3% – 5%|
|Participating Policies of less than 20 years||12% – 45%||8% – 15%||3% – 5%||3% – 5%||3% – 5%|
|Term Plans of 20 years or more||40% – 50%||15% – 25%||5% – 15%||5% – 15%||5% – 15%|
|Terms Plans of less than 20 years||12.5% – 45%||12.5% – 25%||5% – 12.5%||5% – 12.5%||5% – 12.5%|
|Integrated Shield Plans (Healthcare)||10% – 30%||5% – 10%||5% – 10%||5% – 10%||5% – 10% |
Huh? You mean up to 50% of the premium I pay is going to the agent?
For certain products, yes, exactly. That’s why everyone wants to be an insurance agent. Say you sell a product with premiums that cost $2,000 per year. At 50% commissions, in your first year, that’s $1,000 per product sold. Just sell 100 of these products to your friends, and these suck- I mean, clients will have earned you a cool $100,000 in commissions.
For that kind of money, you’d probably be willing to sell your soul.
So what should you do now that you’re aware of the commissions that insurance agents make?
Here are 3 things that will help you make a better decision when buying insurance from your financial advisor:
1. Understand why some insurance agents are more likely to sell you a product
If an insurance agent really thinks that an insurance policy is good for you, ask yourself if he really means that it’s “good for him”. Ironically, it’s understood that the better an insurance policy is for the client, the lower the commission the agent gets. Why? Because good products tend to sell themselves, and don’t need too much upselling help from the insurance agent.
In the same way, agents traditionally earn more by selling you a product that lasts more than 20 years. But ask yourself, do you really need to be locked into an insurance product for such an extended period of time? Remember that some insurance products have penalties that discourage you from cancelling. It can be very expensive to cancel the policy before the lock-in period is over, and in the meantime, if you have cashflow problems, an expensive premium is going to be a financial burden.
2. Understand that you shouldn’t be buying an insurance policy just to “help” the agent
We understand that you’re probably related in some way to your financial advisor. Maybe they’re your uncle, your secondary school classmate, that dancer you met at the bar who gave you a really… memorable experience and is now threatening to tell your spouse. Well, other than the last one, you probably don’t owe them anything.
Except for integrated shield plans, which earn commissions for as long as you pay the premium, most policies earn significantly less after the first year and don’t earn anything at all for your financial advisor after the fifth or sixth year.
That means that the exorbitant premium you’re still paying on an annual basis? None of it is going to your financial advisor. The agent no longer has any incentive to care about your welfare, apart from genuine concern which not all may show. So if you want to help your friend or relative out, don’t do it by buying a policy just to help them out, but do it because it is beneficial to both of you. It may mean $1,000 in commissions for them, but it’s going to cost you much, much more in the long run.
3. Remember that insurance is still important to ensure that you and your loved ones are protected
Once again, we’re not saying that insurance is bad. Everyone should be covered by insurance that they can afford and can cover them to the best of their ability. A true financial advisor will have your welfare in mind, and the monetary benefit to them will come from the good advice and planning they give you.
Make sure that your advisor runs through every policy that you’re interested in, and doesn’t try to push another product as “better” but ends up costing more. Ultimately, if you’re uncomfortable with working with your financial advisor, don’t feel obliged to stick with them. There are, after all, other agents to choose from and when you find the right one, both of you will enjoy a mutually beneficial relationship.
Are you surprised by just how much insurance agents are earning from some products? Let us know how you feel.
The post Ever Wondered How Insurance Agents in Singapore Make Money from Your Policies? appeared first on the MoneySmart blog.
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