A Sense for Money
Most of you will be approached regularly by financial advisers, and the challenge is to decide which of the many approaches to entertain. It’s great that you have so many choices and offers but it’s important to make sure that you choose the adviser rather than let the adviser choose you. Last week’s post gave some insights into the various types of advisers that operate in the financial services sector and their key characteristics. This week we give some tips to help keep you in the driving seat.
Most people in Indonesia buy their insurance through an agent. There are certainly lots of agents to choose from – with life insurance companies having agency forces of up to 100,000. With such large agency forces, almost every one of you will have friends, contacts, family members or colleagues who are agents. These contacts will approach you from time to time and offer insurance advice and products. There are several benefits of choosing an agent who is a close contact. First, you will trust your close contacts, or at the very least know which ones you can trust. Second, you have the convenience of being able to pull them aside at any time if you have a problem or query on your policy or investment. Third, you may find it more comfortable to disclose the details of your medical and financial situation to an adviser who is a close contact than to an outsider.
Of course there is a flip side to having a close contact as agent. If your close contact ceases to be an agent or moves to another insurer, then he will not be able to service your existing policies in the same way as before. Your insurance company will be able to assign a new agent to deal with your policy, but you may not find it quite the same if you are no longer dealing with your original choice of adviser. Also remember that an agent can only offer the products of one insurance company, so if you choose an agent you are also choosing the insurer he represents.
An increasing number of Indonesians now choose to buy insurance through their bank. You presumably already trust your bank to handle your banking affairs; so it is quite natural to extend that trust and let the bank handle your insurance and investment affairs. Some banks offer the products of several insurers and a full range of insurance products while other banks represent only one insurer or may have a narrow choice of products. Buying from a bank is convenient as you can deal with insurance matters at the same time as you deal with your banking matters.
Nearly all of you will have had calls from telesales staff offering insurance products. The products offered are normally cheap and simple products such as personal accident, hospital cash or savings policies. Normally the purchase can be concluded in just a few minutes over the phone, and with a simple health declaration rather than the need for a medical examination. The key benefit of the telesales channel is that it is a convenient way to buy simple products.
A broker’s role is to understand your needs and survey several companies in the market to find which particular product best meets your individual needs. The broker channel is still quite small in Indonesia but is likely to grow over the coming years as the market matures and consumers increasingly ask for independent advice.
At the end of the day, the choice of channel through which you purchase your insurance policy and adviser is down to you and is very personal. You can of course have more than one adviser and there are certainly merits in listening to more than one and in comparing advice and products.
Remember to always go through a three point checklist before you buy:
• Do you trust the adviser?
• Do you trust the company they are proposing?
• Do you trust that the product is right for you?
If you have any doubts on any of these three points, then hold back. Tell them you want to think about it, compare offers or even give a blunt “No thanks, I’ve decided not to buy.” Don’t let anyone pressurize you into buying until you are ready – remember it’s your money.
Finally, one thing to be wary of is any advice which involves you cashing in a life policy and putting the proceeds into a new policy. Normally if you encash a policy there are encashment penalties. Moreover, when you buy the new policy you will face a new set of charges for commissions and may also need to have a new medical examination. So you can lose out big time. This scenario is known in the industry as policy churning and the only person that gains in this situation is the adviser who gets a second round of commission. Now there can be occasions when cashing in one policy and taking out another is be good advice, but this is the exception rather than the rule.
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