Tan Kin Lian's Blog: Big loss on ILP

Monday, January 31, 2011

Big loss on ILP

Dear Mr Tan,
Here is my two cents worth for investment linked products. My wife, being a naive person, bought an insurance/investment plan from a bank after she asked about how to earn a decent return on her hard earned money but was sweet-talked by a financial planner to sign up for the plan. Once the plan was signed, the financial planner did not call her for the next five years and she faithfully contributed $500 a month.

After investing over $38,000 over 6 years, she was told that the current value was only $26,000, giving a loss of 31% (no counting 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? (Food for thought)

My comment
It is best for consumers to avoid all financial advisers and insurance agents. They have to earn commission by selling this type of bad product to you.

13 comments:

zhummmeng said...: In the first place they need not become insurance agents if they are not prepared to sell what is best to their clients.There won't be any complaint, right? Just because you are commission based you have to rob, lie and con to make a living and very often at the expense of their fellow human beings.
The agents should try to rob from those who can withstand being robbed, the rich. The problem it is not easy for the insurance agents so they rob their fellow men of their hard earned money. Those the insurance agents robbed and cheated are unwary, ignorant, gullible , old folks, housewives and aunties.; January 29, 2011 11:15 PM
Singapore Short Stories said...: Hi Mr Tan,

A Happy CNY to you!

I read this article and would like to share my story.

Like the author of the post, I was also pursuaded by a financial analyst to invest in a finanical investment product in 2007 just before the Europe Sub-Prime crisis broke out. The unit price of the REIT fell from $1 all the way to $0.30 in 2010. I sold off the REIT late last year as it was close to impossible to recoup my loss back. I lost $4,000++ as a result.

Regarding ILP, I was also persuaded by a financial adviser to buy it in year 2006. I stood my ground as the guaranteed value of ILPs in general, if I am not wrong, is zero. There is no guaranteed amount.; January 30, 2011 10:12 AM
Vincent Sear said...: SP-ILP is a like a unit trust disguised as an insurance policy. The insurance companies want to sell unit trusts but cannot due to regulatory requirements, insurance companies must sell insurance policies. It's quite alright though, usually costing no more than 1 or 2% over unit trusts but coming with a 125% sum assured.

Nobody's really interested in the sum assured since the first 100% is your own money anyway, and if the fund appreciates above 25%, the insurance is meaningless.

If an investor really likes an ILP fund more than an equivalent unit trust, there's nothing wrong with investing in it through SP.

The problem comes with RP-ILP, where whole years of premiums are taken away for distribution costs on top of the unit sales charges. This is the reverse of SP-ILP as it's a cheap YRT policy disguised as an investment to match traditional whole life premium rates and commission scales.

Admittedly, I used to sell such policies when I was an agent. Going against agency training, I always told my clients to pay minimum premiums and max out on insurance coverage. That turned the RP-ILP into not much more than a YRT with potential of some returns in the end. I assured the clients that they'd never break even and lose money on it, but it's just for the good coverage.

The good coverage being, beside death and disability, critical illnesses were covered separately, i.e. potential of double claim, not just a single accelerated claim. Disability is accelerated to lump sum death claim, not instalments over five years.

For investment and retirement planning, attach an SP top-up to the RP-ILP, which was a good and fair feature. It saves policy fees on multiple policies and makes it easier to monitor with everything under one statement. Cheap PA and H&S riders could be attached to.

I think I've made an honest and decent living by doing that, but I sure wasn't the most popular agent in my agency and company. The real money to be made is by advising the clients to max up on premiums and min down on coverage, with most of the premiums going to investments. However, really going to investments? Under RP-ILP structure, agents and managers take the first 200% or so instead of the 5% or so under SP-ILP.

All in all, my way of selling that RP-ILP would be something like a little more expensive than the FIP plus SP-ILP system under NTUC Income when TKL was in charge.

The difference to agents being, the TKL way gave agents not much leeway to up premiums disguised as investments or savings at high commission rates as long as they're capable of convincing their clients. The other way was both high and low ends were open, up to agents to decide somewhere between morals and profits.; January 30, 2011 3:13 PM
Anon said...: Hi Vincent, while maxing out on coverage while minimizing the premiums is a lesser evil than putting in more "lowly-allocated premium" to the policy, I don't think it can be considered entirely "honest" considering that it is still a plan that shortchanges clients. I am also an agent who have previously sold such plans much to my regret.; January 30, 2011 7:20 PM
COMMON CENTS said...: Dear Mr. Tan,
My wife is one of those who bought into the DBS-Aviva Her Assurance Gold. What advice would you give? Shall she give up on the policy and cash out or continue to pay premiums monthly which can better put to use to buy groceries for the family?; January 30, 2011 10:14 PM
zhummmeng said...: To put things in perspective R-ILPs are better than whole life although both are rip off.
*R-ILPs are more transparent;
*you know the cost of insurance; *you decide the investment;
*you can adjust from time to time; *you can take premium holiday;
*you need not borrow your own money;
*you can stop paying premium.....
*this product is a rip off
Whole life?
*opposite to all the above.
*Borrow your own money and pay Ah Long san interest rate;
*they encourage you to borrow because they want to make money from you at guaranteed rate;
*the company decides the rate of return even though they make more money from YOUR money but gives less under the excuse of smoothing;
*the company hides from you the amount they take from your cash value to pay for mortality charge;
*this product is rip off
The insurance agents bluff you that R-ILPs mortality cost goes up and up but not WL.This is a lie so that the company can STEAL from you without you knowing it because you only pay the same premium. Where does the company steal from you? of course , the cash value... you save they steal..this is exactly employing a thief to manage your piggy bank, right?

CAVEAT: this is an academic comparison exercise to show the 2 evils and which is more evil and not an advice.
The correct advice is DON"T buy any of them. Both are scam and can screw up your financial life.; January 30, 2011 11:22 PM
Vincent Sear said...: Yes, Anon. That's only as honest as I could get, bearing in mind I make sure the clients understand the cost and loss. If they didn't like it, they could always look for another agent from any company. Dishonesty is hiding the cost and loss from the clients.; January 31, 2011 1:06 AM
COMMON CENTS said...: So what is the best advice for clients who have bought ILP? Exit the policy immediately to save paying few hundred dollars premium monthly or continue to pay premium hoping the ILP policy returns upon maturity will be more than the total premium paid?
Any kind souls please help. Thanks.; January 31, 2011 10:55 AM
Spur said...: That's how ntuc sales champions will be celebrating 2 overseas all-expenses paid holiday trips this year. First time in ntuc salesman history can get to enjoy 2 holiday trips within 1 month. Must have conned many CONNED-sumers big time to afford the dual parties. The continued pathetic 0.7% bonus must have also help them to set aside more money for their own enjoyments.

9-12 March will be frolicking on Bali beaches, sipping pina colada and gulping heineken beer in Hard Rock hotel.

28 Mar - 1 Apr will be dancing the salsa and tango with the bulls in Barcelona Spain. Dine at Michelin star restaurant and go out on private yacht cruise with the come-back kid. Wonder if this time he will send Rolls Royce limousine to pick up the top salesman/woman to send to & from Changi airport?; January 31, 2011 5:47 PM
AC said...: In addition to financial advisors and insurance agents, one should also be wary of banks asking you to invest for better returns. My wife was sold an investment product recommended by bank teller which lost 35% of capital and when we approached the back for some explanation, all they could say was that the fund was badly managed by funds manager and the bank has stopped selling their product. As a consumer, we really feel helpless.; January 31, 2011 7:40 PM
zhummmeng said...: Spur,
It is a miracle that many of these sales champions qualified for the trips despite having to sell/push/peddle ILPs as one of the conditions. Before this I heard that they were ILP phobia...they would shit/urinate in their pants/skirts when it came to ILP.NTUC ILP production is the lowest in the industry. Having said that miracle happened when it was made that part of the qualifying production had to be ILPs. WOW!!! suddenly, overnight these salesmen became investment gurus that put Benjamin Graham and Warrant Buffet to shame or to shudder.Some were sharing their ILP peddling skill like Anthony Robbin. ILP sales shot through the roof and nearly shot down a F15 flying overhead.
Not only that they will get a chance to tango with the bull but to tango on the yacht with the comeback kid too.
Indeed the mind is so powderfool that it can overcome/bend matter and turn black into white.; January 31, 2011 11:01 PM
Anon said...: Dennis, you might want to give more details because ILPs come in all shapes and sizes.; January 31, 2011 11:41 PM
COMMON CENTS said...: Anon, sorry for taking so long to respond. I had to sort out the ILP policy of my wife from among the many policies i bought and go through it. It is called Her assurance gold from Aviva. Assured sum $6000. Monthly premium $100. bought since 2003. Can you advise? Thanks.; February 08, 2011 9:52 AM