Friday, December 17, 2010

High insurance charge on ILP

Hi Mr. Tan,
My mother has Pru-Link insurance and has paid for nearly 10 years. She is over 60 now. When she bought the policy, she was told that she only needed to pay 10 years. I looked at her policy now and realized that her insurance charge is half of the monthly premium and there is not much left in the investment account. And I found out that my mother cannot stop the premium as there is not much investment value to cover the insurance charge for long.

My question is:
1. Should I stop the insurance now, as the charge is too high?
2. If I continue the insurance, does it means that I need to give more money every month for protection?

My reply
Please bring your documents and see me in my office. I will discuss the options with you.

The greedy agent only wanted to make a fat commission and does not care about selling an unsuitable policy and the anguish that is being left with the policyholder and the family.


zhummmeng said...

Does your parent need the insurance at this age?
Mortality charge increases with age like the whole life product and the insurance agents don't tell you and neither it is shown in the BI.
This is the reason why the insurance companies love selling this product and WL propuct because the increasing mortality cost is a good source of passive income and revenue to the company Best, it is guaranteed.BY who? YOU the policyholders!!!!!

Vincent Sear said...

I've sold Pru-Link RP before, but only to young clients as a de facto YRT policy that would have some (but little) returns (or refunds) when they don't need the coverage anymore. That is, max out the coverage element and min down the investment element. For serious investment and retirement nest-egg building, use SP.

At young ages, the mortality charges are very low, and a small premium could buy a high coverage with some leftover for investment. There's a contract clause for sum assured that it cannot lapse because of investment units unable to cover mortality charges as long as the agreed premium is paid.

If a client understands all this and choose it over term, whole life or endowment, then I'm fine with it. But I wouldn't recommend it to someone over 50 where the policy begins with rather high mortality charge plus of course the high distribution cost.

Might as well by a term for say, 15years (age 50 to 65) and invest the rest in a balanced SP which can be topped up along the years at low cost for a retirement fund (or at least part of). I'd earn much lesser but feel much better.

Unknown said...

I am a IFA representative , i had recommended Unit Trust investment for my clients base of risk profiling for many years and not a single ILP. Recently one my client stop his unit trust regular premium due to the Giro deduction date not compatible to his pay day.He then ask me to work out a similar ILP plan for him with one from an insurance company that he purchase earlier. i was shock to find out that for every $200 he invested , only $20 per month goes to his investment for the first 3 years and that the agent pocket something like $90/month as commission for the 1st year reducing towards the 3rd year. I find it quite amazing that such arrangment is approve for the consumer. The commission to the agent is more than client's net investment for the 1st three years . How can the net tangible value of a product being sold in the market be lesser than the commission being paid for it. Who is the winner in this arrangment. You may argue that there is insurance cover being provided but actually the cost of insurance from the $200 premium is only a couple of dollars.If the policy lapses out of unforseen situation , the only person that losses out is the client while the insurance company and agent gets the "Assured commisssion" risk free. A better system of commisiion is a fixed sales charge of 3% to 5% of the invested amount nett off mortality rates. so for example $200 minus mortality rate of $5 , the payable sales charge of say 3% from the invested $195 be paid thru out the contribution period. This i think is more equitable the company gets 3% as long as the client invest new funds while the client gets his worth of investment. i will not recommend ILP as long as this upfront lob sided commision stays.

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