How Insurance Agents Dictate What You Buy

Updated 11 Aug 2016 – By Loanstreet


In Malaysia, it’s very common for insurance agents to pass themselves off as financial planners, when the truth is, most of them are only selling, well, insurance. Unfortunately, many people buy into this façade, not realising that the intent behind pushing these pseudo-investment plans is the high commission rates behind them, rather than the buyers’ own personal wellbeing. Here, we highlight how the industry is predominantly agent-based and how you can protect yourself against ambiguous investment schemes that don’t add much value to your portfolio, let alone the appropriate insurance coverage.

Insurance Agents and Financial Planners – The Difference

The main differences between the real personal finance experts and insurance agents basically lie in two aspects.

Firstly, the accreditations; financial planners and advisors are licensed and certified under official governing bodies such as Bank Negara Malaysia and the Securities Commission, and require certifications under various programmes like the Registered Financial Planner (RFP), Financial Adviser Representative (FAR) and Chartered Financial Consultant (ChFC) programmes. Some insurance agents have these qualifications, or have moved on to become certified, but most are pretty much just product peddlers with limited knowledge, qualifications and tools.

The second major difference is how the money is earned; financial planners and advisors charge a consultation fee for assessing and organising your finances to fit your best interests, whereas insurance agents earn commissions based on the products they sell – and therein lies the root of the problem. Their interests lie in selling you the products with the highest commission rates, rather than what truly adds value to you, whether in terms of insurance or investment.

What Insurance Agents Peddle

While many insurance agents would push their plans as solid investment tools to complement your portfolio, a significant chunk of your payments actually goes towards insurance. Now, here’s where you need to be on top of your insurance coverage – are you already fully covered, and if yes, is the coverage value enough? If the answers are no, by all means, consider taking up one of these plans, as they provide at least the basic forms of coverage. 

On the other hand, if you’re happy with your current coverage, be very cautious, as these agents would likely try to pass off these plans as investment tools under the guise of retirement plans, fixed deposit substitutes or even alternatives to property investment. The main thing to realise here is that your money will be tied down for a very long period of time, incurring substantial penalties upon early withdrawal or cancellation.

Additionally, insurance agents would typically have a very limited number of plans available for you; as most would carry only the Pre-Contract Examination for Insurance Agents (PCEIA) and Certificate Examination in Investment-linked Life Insurance (CEILI) qualifications. True financial planners and advisors, on the other hand, would assess your investment profile and recommend various types of tools such as mutual funds, stocks and shares, commodities, and property to balance risk against returns depending on your financial situation.

Introducing E-Policies

But what if you are looking for basic insurance cover but don't want to be hustled by a sales agent. And neither do you feel like forking out for the services of a financial planner? Well, there's good news. 

Beginning 2015, insurance coverage can now be directly purchased online. Recognising the high number of Malaysians who do not have even basic insurance coverage, Bank Negara Malaysia recently issued guidelines on the provision of insurance e-policies to increase accessibility, visibility and connectivity for both consumer and insurance provider. These efforts aim to provide secure, transparent and educational online channels for inexperienced consumers to discover the types of insurance policies, and cover themselves accordingly. 

Although relatively young in Malaysia, the online personal insurance market has already been initiated by several parties at very competitive rates with the hope of evolving the industry over time. The plus point? 

Research by our own editorial team (we used UforLife) has shown it to be very much cheaper for the consumer than purchasing via other means! If you are looking for basic insurance cover, this would be a good place to start. 

Conclusion

Unfortunately, the number of insurance agents in Malaysia is far more than financial planners. Add to that the significant commissions they obtain from selling their products and a loosely regulated industry, it’s no surprise that the personal finance industry is pretty much dominated by aggressive insurance agents, dictating the investment choices of less savvy consumers. 

Education is the greatest tool one can have in this context. Learn up on the different types of investments available to you through online portals or family and friends, and know what investor profile you fall under before committing to anything. Most importantly, stay on top of your personal insurance coverage. Remember, if it sounds too good to be true, it probably is, especially in the context of personal finance and insurance.

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