Excessive spread and unfair practice

Dear Kin Lian

I bought a regular ILP (with annual contribution of $5,000) using CPF many years ago. I did not notice that the offer and bid spread is 5% at that time and the agent also did not tell me (otherwise, I will not buy it).

Every year when I contribute the amount using CPF, the insurance company will purchase the unit trust using the offer price and immediately redeem it using the bid price to cover the insurance premium. The insurance company is profiting not only on the insurance premium but also on the bid/offer spread.

Currently, investment of unit trust using CPF, the maximum bid/offer spread is 3%. Is this maximum spread of 3% applicable to existing ILP? If yes, how could I get the insurance company to reduce it? If not, how can I request CPF or MAS to look into this?

REPLY

I suggest that you write a complaint to the Insurance Department of MAS addressing the following two issues:

1. Conduct of the insurance agent in failing to inform you about the spread. However, as this occurred many years ago, you may find it difficult to raise this point now, as you failed to do so during the past years.

2. Unfair charge levied by the insurance company in applying the spread on your premium and enchasing it immediately (after deducting the spread) to pay the expenses and mortality charge. It would have been fairer for the company to separate your premium into two portions (for charges and for investments) and to apply the spread only on the investments. I think that MAS should not condone this practice, which is unfair to consumers.

If you find the charges to be too high, it is best for you to terminate the policy.