A confusing ILP product that gave poor yield

A policyholders send to me a benefit illustration of an investment linked policy. I was surprised to find the poor yield given to the policyholder. (Note: I have reduced the figures proportionately to below avoid the identification of the policyholder).

The policyholder pays $1,000 a month. At the end of 20 years, the accumulated premium (at the projected 9%) should have been $668,000. The projected non-guaranteed payout to the policyholder was only $280,000 (42% of $668,000). The effect of deduction was $388,000 (58%). More than half of the accumulated amount was taken away.

Based on the above figures, the actual yield to the policyholder was 1.5%. This is a reduction of 7.5% from the projected yield of 9%. Based on the lower projected yield of 5%, the net yield was 0.8% and the reduction was 4.2%. (I do not understand why the reduction in yield should be so far apart).

I asked the policyholder to call me, and to know what he understood about the product. He appeared to be quite confused about how it worked. He said that the adviser mentioned something about the saving component and the investment component which was not clear to him. He did not understand the effect of deduction.

He complained about the high distribution cost (of $24,000), which was not explained to him at the point of sale. I advised the policyholder to seek the assistance of FISCA (www.fisca.sg) to prepare a letter of complaint.

I cannot understand how such kind of product can be allowed to be sold to the public and how the insurance company can justify that it is offering "fair dealing outcome" to their customers, as required by MAS regulations.

Tan Kin Lian