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
I think the agent should be hauled up for mis-selling, non disclosure or suppression of material information or whatever. This contravenes the FAA and also section 27 of the FAA. MAS must act against this agent and prosecute this agent to set an example for other agents to see and to let them know that their turn will come and surely will come.
ReplyDeleteWe are getting below the tip of the iceberg and to our horror .....
it is big mess of unethical practices.
The public must know that their beloved agent is a snake or a wolf masqueraded or in Hellowin mask.
It is time to wake up from the long slumber and stop being a sucker anymore.
Interested to know it's from which company.
ReplyDeleteI remember NTUC Income FA once used a table showing policies of different companies on how long they will breakeven.
ReplyDeleteWonder if anyone have that.
This policyholder has invested a large sum of money. The monthly premium is actually more than $1,000. The benefit illustration shows the above figures.
ReplyDeleteHowever, the policyholder (who appears to be quite well educated) does not read the benefit illustration or understand its contents.
The effect of deduction is so large, yet the policyholder did not ask for it to be explained. Something appears to be quite wrong.
Is this the business model? Confuse the customer and sell on some other angles? It does not matter how bad the product is, because there will be customers who can be sold. If this is done, there is big profit for the agent and the insurance company!
So there is another evidence that educated doesn't mean financially savvy. Insurance is complicate enough to baffle people. Few people are willing to admit. Insurance agents don't even know much how would you expect the clients to know?
ReplyDeleteThis benefit illustration shows an extremely poor product.
ReplyDeleteYet, the policyholder, who was fairly well educated, was not aware the poor yield and is saving more than $1,000 monthly on the product.
Many people trust insurance companies, but are given very poor product. It is almost like daylight robbery!