How Not to Become an Insurance Salesperson?

Lately I was asked by my father to meet an insurance salesperson who come to our house to tell us about the offer their company have for us. My father would like me to analyze the prospect of investing in this particular insurance product, so I begin to ask the salesperson to begin his presentation.

I had met lots of insurance salesperson and saw their unit-link proposals so I know what to expect from their presentation. In short, the salesperson make a comparison between his product and product from his competitor, whose proposal happen to lying around in my desk. Then he had me looking at a figure stating how much money I am going to make if I put my money on him assuming that the interest rate is 18% and compare with the figure in competitor proposal who only calculate for interest rate of 6%,9% and 11%. Because of this difference in interest rate used as the assumption, his figure for the next 50 years are several times higher than what the competitor can offer.

But of course we know that assumptions are assumptions. I have to check whether his assumption is in accordance with funds performance in real world. I asked him the data for his funds performance in the past to recalculate the figure myself. He gave me the data which show a clear sign that his funds have bad performance. I asked him for the reason and he tell me that last year every insurance company dropped due to bad economic climate, citing that some other company dropped lower than his.  I think it is reasonable enough so I let him go this time.

The day after that a salesperson from his competitor company come to meet me. I had know this person for years so we end up chatting and ranting about how bad economic is at the moment. Remembering what the salesperson yesterday said about the drop of all insurance company, I asked this competitor sales whether his company also experience the same thing. To my surprise his answer was no, he explained that his company invested my money in something stable with low rate.

I know that in reality, interest rate is not going to be stable at a point. Rather they are going to vary over time. This variance in interest rate is what statistician call as standard deviation. Two population could have the same average value while having different standard deviation value. For example, a class with students whose height vary between 168cm and 172cm may have the average height value equal to a class with students whose height vary between 160cm and 180 cm. However those two populations are going to have different standard deviation value.