Good insurance agents in Singapore won't offer a policy you can't afford because they take time to understand your needs.
From selling your home to paying for your supermarket groceries, Singapore is turning towards a self-service model. Cutting out the middleman is all the rage these days, and doing it yourself may save you a tidy sum.
However, when it comes to insurance, stick with the conventional way and buy your policy from insurance agents in Singapore. Sure, going through an agent means having to pay commission fees, but your commission also buys you some undeniable advantages.
Before we examine how and why, let’s address the elephant in the room.
How Much Commission Do You Pay Your Agent?
It is common knowledge that insurance agents earn a commission rather than a salary, but you may not be aware that their commissions are taken directly from your premiums.
There’s a limit to how much commission can be paid out per policy, so you can allay any suspicions that your agent is simply mooching off you.
Generally speaking, your agent can earn up to 100% of the first year’s worth of premiums you pay. This percentage differs according to the type of plan you buy, and different agencies have slightly different payment structures.
Let’s illustrate with an example. Say you sign up for an endowment plan, depositing S$500 per month, or S$6,000 per year. The agent who signs you up can earn up to S$6,000 in commissions from your policy alone, spread out over a number of years.
Typically, an agent receives the largest portion of this commission - up to 50% - in the month they sign you up. A year later, they receive the next portion, maybe 20%. The remaining 30% is split up over the next 3 or 4 years.
Commissions Make Agents Focus On New Sales
As you can imagine, the commission structure heavily rewards signing up new clients or plans, prodding agents to focus on making as many sales as possible. So if you’ve ever felt like you were courted and then dumped once the deed is done, this is why.
To be fair, most insurance policies are designed to work on a “fire-and-forget” basis, so there shouldn’t be any need for constant contact once your paperwork goes through. However, some agents go the other extreme, dropping you at the earliest opportunity to go woo their next target.
It’s not that every agent is a money-minded, smooth-talking sociopath; it’s because they’re compelled to act this way. At its core, insurance is a business that requires sales to grow and thrive.
But Persistency Ensures That Agents Don’t Abandon Their Clients
As you’re probably aware, not paying your premiums will incur serious consequences. Your policy will lapse, your protection will end and you’ll lose money.
For every policy that terminates prematurely, an agent takes a hit on their persistency rating. Consistently late premiums may also affect the persistency rate.
Should an agent’s persistency rating fall below a certain threshold, they are liable to face disciplinary action, including clawback of commissions and even revocation of their license.
For that reason, you’ll find your agent popping up every now and then to remind you to pay your premiums. They’re not just concerned about their commissions (which cease after a certain number of years, as explained above). It’s part of their job to ensure your policy remains in good standing.
Without the persistency rating, it’s not hard to imagine unscrupulous agents abandoning their clients after their commissions are paid. This increases the risk of consumers letting their policies lapse and taking a financial loss.
The persistency rating also protects new clients. It discourages agents from selling unsuitable plans, as you are more likely to cancel or surrender a plan you felt coerced to buy.
Buying Insurance From An Agent Helps You Maintain Your Portfolio
Now that you have the broad picture of what goes on in an insurance agent’s world, you’ll see the biggest reason to buy from an agent: they can help you maintain a sound insurance portfolio.
Beyond just handling the complicated paperwork, your agent is invested in helping you fulfil your protection and financial needs.
This means that they will (hopefully) be checking in as you reach personal milestones to ensure your policies are upgraded or expanded to match your growing needs. After all, selling you a new policy or topping up your existing one will start the commission payments again.
They will also remind you to pay your premiums and can offer solutions if you can’t keep up with your payments. Both of these actions will help prevent your policy from lapsing, thereby stopping you from losing money.
How to Spot a Good Insurance Agent in Singapore
Even though all agents are bound by the universal principles described above, not all agents are created equal.
When choosing an agent, proceed as you would with any potential suitor. Enjoy the courtship, but only make a decision in the cold light of day. Use the following 4 guidelines to help you spot a good agent.
1. They Take Time To Understand You
Before attempting to talk to you about any plans or policies, your agent should take the time to understand you. They should understand the life stage you are in, your goals and dreams, your worries and fears, as well as your risk appetite and your financial circumstances.
If your agent seems in a hurry to close you on a plan without fully understanding you as a person, that’s a sure sign they’re either new and inexperienced, or simply focussed on making money.
2. They Make Plans With You
Having gained some personal insights, they should be able to confidently translate your aspirations into realistic financial goals, and then build a practical and actionable plan that works for you.
Some agents make a big show of showing off their wealth, shoving their expensive cars and fancy clothes in your face. We’ve even come across an agent who carries a binder full of “testimonials”, which read like star-struck fan mail.
Who cares? Your agent should be focussed on helping you reach a stronger financial position, not busy boasting about how well they are doing.
3. They Think About You - Often
Where bad agents see only a money-making opportunity, a good one sees the whole person. Your agent should be invested in your success, and when they do contact you, it should be to find out how you are getting on with your goals.
If every time you hear from your agent, it’s because they have an exciting new policy to sell, you know they’re not really thinking about you, just your money.
4. They Know What You Need Before You Do
Your agent should be handling all requests pertaining to your policy as long as it is still in force. That includes everything from minor things like change of personal particulars right up to cashing out a matured policy or making a claim.
When your agent finds out you’ve moved house, they should automatically produce a form for you to update your new address without prompting. And if you ever have to contact them from the hospital or the accident site, a good agent will have all the right forms with them, already filled and ready for your signature.
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By Alevin Chan
A Certified Financial Planner with a curiosity about what makes people tick, Alevin's mission is to help readers understand the psychology of money. He's also on an ongoing quest to optimize happiness and enjoyment in his life.