Expense ratio of insurance products

If you buy a life insurance product, including an investment-linked product, you can find out the expense ratio from the benefit illustration.

You have to look at the projected gross yield and the net yield. If you are told that the projected gross yield is 5.25%, and the net yield (after deducting expenses and mortality cost) is 2.5%, you are incurring an expense charge of 2.75% per year. That is too high.

You should try to get an insurance product with an expense charge of 1.5% or less - especially as the gross yield of an insurance product is quite modest.

If you are investing in an equity fund which aims to give you a gross return of 7%, you can accept an expense charge of 2%, to give you an net yield of 5%.

Tip: Make sure that the expense charge is not more than 1.5% per annum for a product that gives a modest return, or 2% per annum for a product that gives a higher return.