Tan Kin Lian's Blog: Investment-linked plan with high distribution cost

Monday, December 17, 2007

Investment-linked plan with high distribution cost

Hi Mr. Tan

I just purchased an invesment linked plan from company X. It covers death, disability and crisis cover with terminal illness. The annual premuim is $3,000.

I want protection and saving for my retirement. I am Y yrs old and self employed with little CPF. The agent said this is the best plan out of all.

Can I take up this plan first as it is much cheaper in premium for my protection coverage and reduce it later to convert it into purely investment? The policy is now within the 14 days free look period.

REPLY

Can you find out how much of your premium is invested in the fund for the first few years, and when will 100% be invested?

I understand that the disctribution cost (to pay commission to the agent) from company X can take away 16 months of your premium. That is a lot of your savings to be taken away. You can look at this webpage, http://www.askdrmoney.com/Ins_ILP_RP.htm

I suggest that you cancel this policy immediately, i.e. within the 14 day free look period, until this matter is cleared up.

7 comments:

Anonymous said...: I know this product . It is regular ILP which is flexible and can be DIYed into a plan that mimics the traditional whole life or endowment.
It is good for young to max coverage but if you have no time or the discipline to review it will get out of hand and it will lose its objectives.The agent is paid 50/25/25% for 3 years in that order.
Go for simpler strategy. Seperate your needs into protection and investment, ie. buy term and invest the rest. It is cheaper .
Example; buy decreasing or level term or YRT. Invest in regular ILP ID7 from Ntuc busniess centre or RSP unit trust. Both are very low cost.Remember to avoid whole life and endowment or revosave from NTUC. These products are stealers of your heard earned money and insurance coverage.; December 17, 2007 11:41 AM
Anonymous said...: If the agent is paid 100% over 3 years, it means that $3,000 of your savings goes into the agent's pocket.

What about the agent's manager and the company's charges?

You may end up with 16 months of your savings disappearing. That is $4,8500 of your savings that should be going for your retirement.

Cancel your policy now.; December 17, 2007 11:51 AM
Anonymous said...: Remember , don't jump from the pan into the fire. There are lots of products that are complicated and are intended to confuse you. Don' t get caught again unwittingly.Get a good , honest and qualified adviser to help you.I know it is not easy because the advisers are disguised as consultants, planners, associates and some other fanciful names.You do not know who is the real one and can be trusted. I think the first step and a little safer is to check the credential. The most acceptable and globally recognised credential is CFP .It is stringently regulated by a global body.; December 17, 2007 12:09 PM
Tan Kin Lian said...: The policyholder repled to me:

According to the table, my premium will be invested in the fund 100% only on the 4-9 yr onward.

Year 1 is 20%
Year 2-3 is 50%
Year 4-9 is 100%
Year 10 onwards 105%.

This means that 180%, or 21 months of the premium is taken away during the first 3 years. This is in addition to a 5% spread to be incurred for each investment.

Although the plan invests 105% of the premium from the 10th year, after deducting the spread of 5%, the actual investment is only 100%.

This is expensive. A lot of the savings is taken away to pay the agent's commission and other charges.; December 17, 2007 12:20 PM
Anonymous said...: From my understanding is that, the insurance charged incurred for for a 20+ can be cheaper in the long run versus a term insurance.

And By getting a decreasing term insurance, you are subjected to lower coverage every year. If you are looking for Major Illness protection to preserve your wealth. You will be losing your insurance objective.

At the end of the day, insurance does not equal to investment. Insurance ensures your wealth is not erroded due to unforseen circumstances.

Even though you can invest and get the difference by the end of the day. Why wouldn't you use part of your earnings of your investment to insurance your total income from the investment?

Just my 2 cents worth; December 17, 2007 12:56 PM
Anonymous said...: Why is this type of plans allowed to be sold to customers?. You can see that it does not add value to customers. The customers are legally robbed of their hard earned money with insurance agents abetting the companies. The conspiracy between the company and the agents is obvious. The company needs market share to be #1; the agents motivated by high commission. There are now a lot of these products ranging from endowment to structured ILPs like above. What have become of the plain vanilla products we used to have?; December 17, 2007 1:21 PM
Anonymous said...: Mr. 12.45pm, that is exactly what your insurance agent wants you to understand.It is cheaper when you are young. It is true. But your insurance didn't tell you you could buy a term critical illness insurance to cover you till 65 and beyond. It is cheaper
and you can invest the rest and the amount accumulated is far more than you have accumulated using a limited or cash value type of insurance. Why didn't your insurance agent recommend you a term? The answer is he got higher commission than selling you a term.
He might have told you that you need one that covers whole life.You can but do you need one? It is very expensive; the mortality charge can deplete your cash value.You need this for retirement and instead of squandering it on something which may not happen.If you still worry, the best means is have a H&S medical like your medishield by CPF.That will take care of your wealth being 'wiped off' by an illness. Don't listen to the insurance agent who is not truthful or has other motives.; December 17, 2007 8:09 PM