Mr. Tan,
My insurance agent advised me to invest monthly in an ILP policy, as I can benefit from dollar averaging. He said that if I invest a lump premium, which does not benefit from averaging. Is this a correct approach?
REPLY
The agent is probably telling you only one side of the story. You should ask the agent the following question:
"If I invest a regular premium, how much of my premium is invested? How much is taken away to pay expenses?"
"How much commission do you earn from a regular premium policy, compared to a single premium policy?
Most regular premium ILP in the market takes away up to 24 months of your savings. During the first year, a small proportion of your premium is invested, and the rest is taken away to pay commission to the agent and other expenses. The agent usually avoid explaining this charge to you, but is is disclosed in the policy illustration.
If you save $300 a month, the charges of 24 months amount to $7,200. This is a lot of money to give away, just by investing in a regular premium ILP. This is the most expensive part of an ILP policy.
Some insurance companies have a lower front-end charge. You should ask the insurance agent about it.
If you wish to do dollar averaging, it is better to invest in a unit trust. You do not have to incur this heavy front-end charge.
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
This is getting out of hand and insurance agents have no qualms doing all this. The clients are at the losing end. I heard of this practice from a ntuc agent friend and this is how they make more money from a policy The agent was telling me that if there comes a client with a lumpsum to invest. These are the options.
ReplyDelete31.If the cleint is conservative, convince the cleint to split the lumpsum into 5 installments. Instead of investing in the single premium endowment Growth Policy advise them to invest the installments in Harvest to get more insurance coverage.
#2. If the cleint is a risk taker convince the cleint to invest regularly in ID2.
In both cases the agent makes a lot more in commission than on single premium.
#3.The latest ruse is to get client to buy one and finance the other. Example; buy revosave and use cashbacks to pay for vivolife. Here agent gets 2 commissions.
You can see the ingenuity of insurance agents to drain off the clients of as much premium as they can.This is creative selling, or is it daylight robbery?
In a very turbulent market you do spit into a few but not monthly or yearly. In this case it is obvious that the advice is for the benefit of the agent, high commission. If it is ntuc, the commission for single premium is 1.5% and regular ID2 is 30%. For other companies the difference is even worse.You can see the conflict of interest.
ReplyDeleteA lumpsum over the long term ,the return is much higher.
My advice is to terminate this relationship and look for an honest and competent adviser.
If you wish to invest regularly with NTUC ,invest in ID7. It is available at the Business centre.It is 100% invested except for the $4 monthly fee. Remember not to be confused with another IDEAL plan, ID2. This plan takes away at least 45% of your premium plus the monthly $4.
ReplyDeleteBe on your guard, first ask for disclosure of commission. This will help to distinguish between the 2 plans.It is tricky if you are not careful. Agents are good at this.
They are master of illusion and tricks.
I myself am a financial adviser and I used to think that ILP isn't worth the time and the money spent. NOT all financial advisers are out there to cheat your money. We do have integrity too you know and believe it or not, some of us are passionate abt our role and we do derive satisfaction from helping n advising people!
ReplyDeleteBack to the Question, IF your objective is only to 'invest' with NO coverage needs and both your adviser n you know abt this fact, then getting ILP is redundant and YES your adviser's not doing your job! HOWEVER, if you DO need the coverage and, depending on your situation eg limited budget, then ILP IS an option and your adviser IS doing his job!
The more I read this website, the more I feel that it's kind of poisoning people's mind abt insurance, saying as if insurance agents are out there ready to bluff you. This is bad...
If you wish to do Dollar cost averaging, probably unit trust sounds good, however if you were to die when the market is bad, then too bad for your family.
ReplyDeleteWith an ILP, if you die when market is bad, at least your initial sum is in a way guaranteed.
I believe all products have thier pros and cons and there's no perfect product out there. That is why you need Financial Adviser to do a good job and tailor it to your need.
However, there are yes, some bad ass out there, but you can't deny the fact there are cloient's out there who chose to believe friends, relatives, and silly forum writer "up there" who tries to brainwash people and thinking that he is actually helping the public.