Tan Kin Lian's Blog: ILP - sharing our experience and mistake.

Sunday, November 21, 2010

ILP - sharing our experience and mistake.

Dear Mr Tan,

Here is my two cents worth for investment linked products. My wife being the naive person she is bought some insurance/investment plan from DBS/AVIVA called her assurance gold in a bid to earn a decent return on her hard earned money but alas she was sweet-talked by a financial planner to sign up for the plan.

Once the plan had been signed, the financial planner did not call her for the next 5 years and she had faithfully contributed $500/mth to this plan.

She started investing in this product in July 2004 till present Nov 2011 which would make it a total of 77 months of premium paid up to date. (Do correct me if I got the months wrong) Thus paying up to $38,500 in total. The current value is worth only $26,650.22 which a loss of 31% (no including inflation)

After selling the policy, agents have a hands off approach. I do believe that most people are better off investing in an STI ETF or some blue chip share which gets dividends.

I do hope that other investors do learn from our mistakes and not be CONNED into buying investment linked products from agents who think of nothing but earning a quick buck from naive people like my wife.

My pain is your gain!

*Kindly take note that most insurance agents do not have a basic salary or a very low basic salary thus they would sell products which would give them the most commission as just to meet the client, they would have to pay for dinner, transport, parking etc thus selling low commission products such as term insurance would not make sense to them.

PUT YOURSELF IN THEIR SHOES, WOULD YOU BE SELLING TERM INSURANCE TO EARN A MEASLY COMMISSION OR INVESTMENT LINKED/LIFE INSURANCE? (Food for thought)

KC

My view
Although an insurance agent needs to earn an income, it does not justify selling a policy that makes the customer poor for a long time. Some agents earn more than a modest income to make a living - they earn a large income of five figures a month.

The agent claims to be professional and to give advice in the interest of the client. It is bad for them to mislead the client and sell bad products to rip off the client.

10 comments:

AC said...: I also have a DBS AVIVA policy and I faced the same situation as you. I bite the bullet and close the policy last week. No point continuing as they will continue to take away the money from you while you paid for the loss. It sad that most of us learnt of this too late. For those in the same boat, you should take a serious look whether to cancel the policy. Continuing does not seem to be a good idea.; November 21, 2010 11:52 PM
zhummmeng said...: KC,
I comment on your second last paragraph.
You said 'my pain is your gain'.If this is the basis of their business it is no difference from gambling, which is a zero sum game or robbing. They should be robbing the bank and not the man in the street. The problem is the man in the street is an easy victim and not the bank.
I would advise these agents that it is NOT the right business for them. There are people who are doing well in the fee only model and who are very competent to provide advisory service to the customers on a win win basis, ie. these advisers are paid for work done and not for products.
The problem is many joined the insurance industry to get rich quick. Listen to their recruitment
business promotion talk and you can hear the insurance companies only stress on sky the limit earning and many other incentives.Who pays for them? Of course the customers...but it must be fair.Only 4 'O' levels and you can earn above $100K a year minimum and this is what is promised that new agents can expect to earn.How to earn so much? of course, go on the streets and start to con the unwary consumers based on number game..product pushing and not providing financial planning which is too slow.Product pushing is fast and lucrative and push only high commission products.The insurance companies encourage this.
MAS should weed out this type of salesman by tighening the rules and the processes.; November 22, 2010 10:01 AM
hosingping said...: Why Aviva is link with DBS. I have closed off my IL POlicy with prudential despite my losses of half of my premum paid. if i continue the policy. i will continue to lost. 3 years ago, i bought a Elite homecare policy, a form of fire insurance policy. Recently just noted that it will expire on 30 Oct. I want to cancel the policy then. So i did not inform further to cancel since is going to finish end of month. then nov, i realise there is a dedcution in my account. So i call AIA and was told that the premium is auto renew. I realise that if everyone do not notice on all these. these small premium deduct yearly make the insurance company rich.; November 22, 2010 11:14 AM
ron said...: Well, I bought AIA Financial Guardian ( its a whole life policy )
in 1990 with a coverage of $100K along with riders.
Annual premium is $2177.
It has been 20 years.
I have paid $43,540 over 20 years.

The cash surrender value is ( at 2009) is $30,627.34
A difference of $12,913

In 2005, AIA had some issues regarding the critical year which basically meant that you may choose not to pay anymore premiums
as agreed in the contract. However some policy holders did not accumulate sufficient dividends to take this option, because there was not enough.

I chose not to pay anymore outright cash but to use my accumulated dividends which at that time ( 2005 ) stood at $9,242

The accumulated dividend now stands at $4083 after 5 years of using it up.

I removed some riders and now pay $2027 per year, again using the dividends. There will come a time I will have to resume cash payments.
However I have decided not to and will be surrendering the policy.( around 2012 )

Since I bought the policy in 1990 ( from a friend ) I have not seen or heard from him or anyone else who is suppose to represent AIA!
Except a letter in Jan 2005 to offer me options in dealing with the critical year issue.

I support the concept of term insurance and urge all to ignore whole life.

It is a waste of time, money and an insult to your intelligence; November 22, 2010 2:03 PM
Unknown said...: Just like Mr Tan's wife, I have an AVIVA her assurance gold plan. It's really a terrible mistake. Been thinking for a quite to see if I should terminate as well since now I have reduced my premium to only the basic $100.; November 23, 2010 1:42 AM
Unknown said...: Hi all. To give a fair, balanced view of the picture, some of the comments stated are not entirely true.

For those who bought ILPs, you must understand these policies contain protection elements. It is not pure investment, meaning a certain amount of the premium actually goes into financing the protection! This is done indirectly through deduction of units held.

A correction to KC's post. I presume he meant from July 2004 till Nov 2010, not 2011. That's a period of 6 yrs and 4 months. One must understand that ILPs usually are what we termed as "front loading". i.e. the cost of admin, commission to agent, etc. are incurred during the 1st three years of an ILP. You'll see clauses like only 25% invested in 1st yr, 50% 2nd yr, 75% 3rd yr, and 100% from 4th yr onwards. And after 10 yrs, they may reward you with 105% allocation (figures are just for illustration purposes).

Hence, KC's wife ILP only really started "working" at 100% in 2008. However, we all know the financial crisis started in Oct 2008 and lasted through 2009. Only in 2010 did we see some form of recovery. Hence, I feel it is too quick for KC to judge that his wife had been conned.

With these 3 factors, it is very possible for your wife to sustain a 31% loss.

What is your intent? Pure investment? Then she has bought the wrong product. ILPs are for people who wish to invest AND at the same time, require protection. This protection is realized thro deduction of units and does NOT come free.

Typical investment period for ILPs are long-term. Leveraging on principle of DCA (dollar cost averaging). I'd say at least 10 yrs if there's an economic crisis in between.; March 03, 2011 10:03 AM
Unknown said...: While there are some who sell products based on commission... there are others who hold a full day job and working only part time like me.

I too, felt conned by agents. So much so, I've decided to take up the course during my vacation and to do my own financial planning. It had been enlightening so far.

As you can see, I'm not driven by sales figures and work only as passion. A vigilante of some sort in insurance.

Unless you're financially independent, Insurance is a MUST have.

For starters, Insurance is primarily about *Protection*, not about returns. Packaging a savings or investment element in a protection plan simply makes it more attractive as many do not see the value of financing something which they could not see for years!

Are you open to paying $80 a month on termed insurance where you'll NEVER see your money back?

All the comments were about returns. However, all fail to realize had something happen to you within the insured period, you could've gotten perhaps more than TEN times what you've put in! i.e. KC wife could have put in $6000 after yr 1 and make a claim of $100,000!

No investment vehicle can offer you this sort of protection.

So pls, gentlemen. If you order a coke and get a coffee. By all means complain. But if you mistakenly ordered a coffee THINKING it's a coke... then there is a misunderstanding and you are not conned.; March 03, 2011 10:21 AM
Serene said...: So should we terminate the policy asap although there might be some losses, or we should wait till the policy ended, maybe another 10 yrs? so that there will be interest which is less than 2% per annum? thanks!; November 13, 2012 10:40 PM
Tan Kin Lian said...: Serene, you can attend the talk by FISCA.

You can attend the education talks organised by FISCA here
http://easyapps.sg/assn/Org/Event.aspx?id=5

You can join FISCA as a member and enjoy discounts on the talks

To join as a member, register here:
http://easyapps.sg/assn/Org/RegisterUser.aspx?id=5

The membership fee is $36 a year, and you can access the website and get a
newsletter twice a month.; November 14, 2012 6:13 AM
Unknown said...: I facing the same problem my mum bought her assurance platinum ob 2004,she pass aw
ay recently,aviva told me this policy cover death coverage,in the end they told me no.; June 23, 2019 1:15 PM