Life insurance is about filling needs, still a good investment

The Trinidad and Tobago Association of Insurance and Financial Advisers views with the greatest concern and chagrin the misstatements, half-truths and innuendos contained in an article which appeared in the Business Section of your paper on Wednesday October  8, 2003. The article headlined “Life Insurance is not an investment” appeared under the name of Varun Maharaj, CEO of Inter Commercial Bank. It is always amazing to our Association that individuals in the banking sector are so quick to address issues on the insurance industry which is very often misleading to the public.  It would be more beneficial to everyone if these Executive Officers would focus on providing more efficient and secure banking services at reasonable prices rather than comment on areas, which they clearly have not properly researched.

The Association does not intend to enter into any discussion on the respective merits of term, life insurance or individual deposit plans as pursued by your paper’s subscriber.  The Association stands by its considered view that its members (Insurance advisers) provide plans based on their clients’ needs — term at times, other life policies on other occasions, or deposits, annuities or mutual funds when the case demands. We do wish, however to highlight some of the glaring inaccuracies, half-truths and innuendos which were mentioned in the article.
Inaccuracy

Cash value policies are horribly expensive.  A cash value policy might cost eight times as much as a term insurance policy with the same death benefit.
Fact
Premiums on Life Policies are determined on the basis of the clients’ age, health and the desired coverage.  A cash value policy will not cost eight times as much as term but rather about 1 1/2 times as much.  It must be noted that banks often ask prospective borrowers about the type of life insurance policies they have and are quite willing to hold them as collateral on loans.  The banks are well aware that as your balance on the loan comes down your cash value would be increasing therefore reducing their risk.
Inaccuracy
The cash value grows on a tax-deferred basis so there are no income taxes to be paid each year.  You will probably never be rich enough to need estate tax savings.
Fact
Premiums paid on life insurance policies are paid with after tax-dollars.  It was since the days of the NAR government that tax savings on life insurance policies were removed.  Hence all proceeds from life insurance are not taxed. 
In addition, estate taxes do not exist in Trinidad and Tobago.
Our Association views with great concern that a so-called experienced banker who advises the public is not aware of these things.
Misapprehension
More and more of a cash value policy’s promised death benefits comes to be represented by cash value; the pure insurance you buy each year decreases. 
Fact
It seems obvious to our Association that Mr Maharaj has not spoken to a properly trained insurance adviser for some time.  The insurance industry now offers a wide range of products.  Clients can now purchase insurance that would pay BOTH the death benefit and the cash value at the time of a claim.  Clients can also make lump sum deposits to their cash values and historically performance has shown that these investments have outstripped any other investment in its class. 
Inaccuracy
You could also borrow from some pension plans and on deferred annuities.
Fact
One cannot borrow from or use as collateral any registered deferred annuity or registered pension plan.  One can only get the tax benefit on a registered plan.  This is a government stipulation.  However, 30% of the fund can be withdrawn from a registered annuity or pension plan by first time homeowners towards the deposit of a home.  A registered plan can also be deregistered but this will attract an initial penalty tax of 25% and the proceeds declared as income in the year the annuity is deregistered. 
Misapprehension
All of these drawbacks are pounded home by an army of life insurance agents who will then contrast these flaws with the voluminous virtues of cash value insurance. 
Fact
The members of our Association have been trained to identify the needs of prospective clients, first and foremost. This is done by visiting the prospect at least on one occasion but more likely on two or three visits.  During these visits a fact-finding analysis is done with a view to determining the clients’ short, medium and long-term needs.  If the client is married, the presence of the spouse at the interview is highly recommended.  At the end of the financial analysis recommendations are made. They could include the purchase of life insurance, medical and disability insurance, annuities, mutual funds or other deposits.  A package could include all of the above depending on affordability.  As far as we know this is seldom if ever the approach adopted at the bank, where very often minimally trained front line personnel become product pushers. In conclusion that major flaw in the article to which reference has been made stems from an erroneous belief that the modern day responsible and astute Agent/Insurance Advisor is concerned with selling a set policy. This is no longer generally true.  The responsible Insurance Advisor now caters to the client’s needs and invariably finds himself after having ascertained these needs making a recommendation, which could include a combination of various policies. TTAIFA through its courses and all Life Insurance Companies through their training programmes place great emphasis on this holistic approach. We therefore wish to draw the above to the attention and consideration of Mr Varun Maharaj and to anyone who may have been misled by the contents of his article.