Comments on: What now for pre-need policyholders?

By: Life Insurance by Willeus Acuna

Life Insurance by Willeus Acuna — Tue, 20 Sep 2011 15:39:19 +0000

As a plan holder of CAP, I too got burned on this so I know what it feels like to get taken for a ride by greedy company executives. For those thinking of getting a pre-need plan, the pre-need company will invest your money on stocks and bonds anyway, so why not learn how to invest in stocks and bonds and do it yourself?

One thing I would like to point out with your article is that you made no mention of life insurance. Some of your readers might lump pre-need plans with life insurance when this is not quite precise. I have heard of pre-need companies failing, and of banks failing, but I have not yet heard of a life insurance company doing so. It seems that whatever regulations are enforced for the insurance industry should also be applied to the pre-need industry for people to start trusting them again.

By: AldousCarlos

AldousCarlos — Mon, 15 Nov 2010 08:00:02 +0000

These institutions will just use your money to invest in high risk, high return financial instruments, and they themeselves take a cut from your earnings. So why not just manage your funds yourself. That is if you have the time to do it.

By: salve

salve — Wed, 14 Oct 2009 02:58:41 +0000

Hi Lily,

Great question and one that requires quite a bit of thinking and cross-checking for me. Based on Philam Plans’ latest report to the SEC, their liabilities are well-covered by their fund. That means they claim that they have the money to pay you when your claims are due. What’s truly amazing after this latest financial debacle is that they are still standing even after AIG collapsed. That’s something you don’t see everyday.

Having said that, as a financial journalist who is trained to look for cracks, I would say use this time to grow your money in other ways so that you can have a plan B just in case things go wrong. If there is something I learned, it doesn’t hurt to have a back-up plan, because in this day and age, nothing is definite. This is where diversification is important.

Bottomline, if its fully paid, let it rest there until the time you would need it. But diversify and save more and invest more so that you have a backup plan, just in case. Hope that answers your question Lily!

By: lily

lily — Mon, 05 Oct 2009 12:30:48 +0000

hi Ms. Salve! i watched Shop Talk kanina where kayo ni Mr. Efren ang guests. I’m sooo glad i switched to ANC.

Anyway, just a quick question: can we consider Philam Plans as a good/stable company? I have a pension plan with them, fully paid na, and it’d mature on 2017.

By: salve

salve — Wed, 22 Jul 2009 11:34:33 +0000

hi hachiko, i love the plain language. Tell it as it is!

By: salve

salve — Wed, 22 Jul 2009 11:32:33 +0000

No-namer: Commissions at 60%. So that’s really true ha??? I don’t know whether I want to wring my friend’s neck dry or congratulate him for being in such a high-paying job! But it seems that such high rates really is not sustainable. Thanks for answering my very kulit questions. Hope you can continue to enlighten us, your comments are very, very helpful.

By: hachiko

hachiko — Fri, 17 Jul 2009 14:35:19 +0000

Pre-need is dead meat. Don’t even bother with it. Too much pork given to sales agencies leaves you with too little trust funds and no money when tuition is due.

Horrible regulation and risk management practices too. Imagine they sold open-ended education benefits hoping they could lobby govt to limit tuition increases forever! And products designed at fantastic yields of 15% a year. It was okay in the ’70s and ’80s when the value of money sank fast. But now with so little inflation and just 5% yields after-tax, oh well, they’re dinosaurs.

And let’s not get into all the stories of fraud / estafa surrounding Legacy, CAP, Platinum etc. Simply horrible. Good riddance!

By: no_namer

no_namer — Thu, 16 Jul 2009 04:39:00 +0000

Hi Salve! Commissions can go as high as 60% for pre-need plans in the first two years. Then with tapering or no commissions from 3rd year onwards. But there are some companies who give a flat commission over the whole paying period to encourage collection. Roughly, this translates to 30% of the contract price going to commissions. A certain percentage also goes to incentives. The remaining funds are divided into operations and trust fund requirements. Can it be lowered? Definitely! But based on our experience, it’s hard to implement. Try asking your salesforce to produce more sales but giving them lower commissions. It’s like telling them to work harder to get the same commission amount they got before. But admittedly, lowering commissions alone would not save the industry, it has to be done together with other actions.
Now, before actuaries rain down fire on me, no one can predict yields right? But they must make assumptions, much like investment managers when making investment decisions. So the actuaries present their computation to the preneed company who then sends it over to SEC. If SEC agrees with the computation, based on their own actuarial validation, then the product is a go. As I said, if the bull disappears and the bear comes around, the pricing model becomes null and void. So can this by itself, sink the industry? No again, it must be a confluence of factors and events.
Hope I was able to answer your questions =)

By: salve

salve — Wed, 15 Jul 2009 23:31:11 +0000

hi no namer, thanks for your very well thought-out reply. i love long posts, dont apologize!! have a couple of questions, though. how big were the commissions? do you think they could have scaled these down and saved the industry from keeling over? On the actuarial assumptions: are you saying that the actuaries made mistakes?

By: no_namer

no_namer — Wed, 08 Jul 2009 07:53:40 +0000

Hi Salve! Just wanted to comment on your reply to audi. I worked for 11 years in a pre-need firm so I do have an idea of how things could have been averted. There are many reasons which somehow are connected.
One, the trust fund requirements set by the SEC for each year of payment. I really found it ridiculous before and was glad to see our company not follow it beginning early 2000. I read recently that the SEC has revised this and I think it just might work for the industry. The stumbling block is that with bigger trust fund allotment at the early years, commissions will be affected. If salespeople won’t be too greedy, this won’t be too much of a problem.
Two, open ended plans. Almost all companies who sold open-ended plans are now closed. The remaining few who sold such products up to today are those reported in the news already. My former company saw this as early as 1980’s. When it introduced its educ plan, it was never open-ended. Its open-ended lifeplan was also discontinued in the 80’s. Open ended plans are only good partnered with regulations and an extended bull run. Two things which can change any year.
Third, actuarial studies. Pre-need products are a result of actuarial studies. But as with any mathematical computation, a wrong assumption negates the whole computation. What specifically? Yields on investments. Lower than expected yields may put the products in trouble, but projecting a lower yield, though safer, makes the product unappetizing to clients…. talk about between the devil and deep blue sea.
Lastly, I believe the true calling of pre-need is in service. Give a service, and not just cash, will make it distinct to other products e.g. insurance, UITFs, MFs, etc. If the industry goes back to its roots, it will survive.
Sorry for the long post =) God bless your new endeavor!