Dear Mr Tan,
There are many investment products in the market. But, it seems that the life insurance product (ie endowment policy) has the biggest upfront cost to the consumer. Even the ILP has 19 months of upfront cost, according to Dr Money's website. Why are the charges so high?
Many years ago, the governments in most countries wanted to encourage people to buy life insurance to provide protection to the family. They offered an attractive incentive - the life insurance premium can be deducted from taxable income.
Life insurance companies paid high commissions to agents to sell this product. The high cost is offset by the tax savings. The product still give good value to the consumer.
The situation changed, when most governments withdraw the tax savings. Without the tax savings, the high commission makes the product unattractive for consumers. Many insurance companies contined to sell these "poor value" products, instead of changing their product and marketing strategy.
Some companies adopt a different approach. They sell term insurance to provide the low cost protection. The consumer can invest their money in other investment funds. Some of these funds have low cost and give good value to the consumer. (But, there are high cost investment funds - which should also be avoided).
Lesson: Look for low cost insurance products (e.g. term insurance) and low cost invsetment funds (e.g. indexed funds). Avoid high cost products
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