Insurance companies got to buck up!

2 days ago, the newspapers reported a case on endowment policy, where the policyholder (elderly man) found that the maturity proceeds was lesser than the total premium he put in for the past 18 years. Professionally, i found that the explanation given by the spoke person of the insurance company unacceptable. This incident highlight a few short-comings of life insurance companies in their communication with policyholders.

Short-coming number one: Like to use complex wordings which are technically correct but completely confusing to the policyholders.

I got this feeling that the staffs of insurance companies churning out the anniversary statements assume that ALL their policyholders have a degree in actuarial science. The word "reversionary bonus" has a total difference meaning with the word "bonus" as understood by laymen. As policyholders, they want to know how much cash value their policies worth at any point in time, so that they can make appropriate decisions, or manage their expectations. Strangely, this simple data does not readily appear in most insurance companies' anniversary statements to their policyholders since the beginning of time.

Interestingly, many financial advisor representatives also do not understand the difference between "reversionary bonus" and "bonus".

Short-coming number two: Insurance companies assume that ALL policy-holders bought their policies for protection purpose.

The truth is some policyholders bought policies, not for protection purpose, but to accumulate retirement fund. Especially so for endowment policyholders. To this group of clients, insurance protection feature is a "good to have" item, but not the main requirement as expected from the policy. In above newspaper report, the affected insurance company explained to the elderly client that much of his premium has gone into protection charges because of his old age while acquiring the endowment policy. But, who cares about the protection item, when the purpose of the policy was to accumulate retirement fund and not for protection.

Short-coming number three: Insurance companies don't like to update policyholders on the current cash value projections unless being asked.

Above incident would have been mitigated if the insurance company had sent a cash value projection to maturity to the client every year, so that the client can make inform decision and manage his expectation. To realise the problem only after holding the policy for 18 years (and faithfully paid the premiums) is unfaired to the client. Again, this simple information is guarded like state secret unless being asked by clients or advisors.

Life insurance is a noble product that help solve many family and business problems. But the way insurance companies communicate with their clients is far from satisfactory and lacks common sense, this is something they got to buck up. The existence of a life insurance company is due to the support of the clients, and not the otherway round.