- The consumer takes the investment risks, without any commensurate return
- The consumer is locked into the policy due to the excessive upfront charge
- The insurance company levies a high fee to manage the investments
- The insurance company is not good at investing the funds (generally)
Many investment linked polices have a reduction of yield of 4% p.a. If the investment earn 6%, the net yield to the consumer is 2%. This is a poor yield for locking up the money for 25 years. It is not sufficient to cover inflation. It is a very poor yield, considering that the consumers takes all of the investment risk. I wonder why the regulator allow consumers to be given such a bad deal on their long term savings.
At least whole life and endowment policies provide some guarantee for the policyholder, in return for the low yield.
If you can find an investment linked policy that takes away less than 1% per annum for the management fee, and invest 100% of the premium from the first month (i.e. the premium is not used to pay commission and other distribution cost), then the investment linked policy is acceptable. So far, there is no such policy in the market. The best choice is to invest in the STI exchange traded fund, available in SGX.
Tan Kin Lian
5 comments:
As far as I know, the Singapore version of RP-ILP was "invented" by Tan Suee Chieh at Prudential in the early 90s, based on the American universal variable model, but far more expensive. It's the most expensive way to invest in the world as far as I know.
Those days, even MAS was clueless as to such an "innovative" product. ILP exam wasn't required yet since nobody had any clue how to set the paper. Projection went as high as 16% on BI. Completely unguaranteed of course but nobody, agent or client cared, in the early to mid 90s market boom.
The deduction for distribution cost was 200% over first 3 years (all going to agents and agency managers) and 5% charge on all premiums (going to the company). After the 10th year, 5% "bonus" is added to offset the 5% charge.
It propelled Prudential from a sleepy colonial remnant to one of the big four in the industry.
Shortly thereafter, I think TKL would remember, NTUC Income introduced their first RP-ILP too, in respond, i.e. the original Ideal Policy. It was much cheaper and scaled down version but NTUC Income agents wouldn't or couldn't sell many of these. To their credits, most of them realised it was still risky and expensive, and traditional policies were still harvesting good yields then.
By the early 2000s, after the Asian financial crisis and dot.com tech crash, many NTUC Income agents started demanding for a new higher commission version of the Ideal Policy. TKL resisted the high commission structure leading to much agent discontent as traditional policy yields kept falling, becoming harder to sell.
Why the come back kid is not introducing his baby in ntuc?....
The sales champions are so frightened, so fearfool of ILPs that they will urinate in their pants/skirts...but but but...if selling ILPs is a condition to qualify for the overseas incentive trip these greedy agents can become embolden, change color and TRANSFORMED into ILP experts OVER NIGHT..how powderfool isn't it? They started to give talks, shared the skills of peddling ILPs without tears, without batting an eyelid , without conscience.Anyway die is the customers' business.
MAS must read this and conduct a surprise raid before they burn off the fact find.
For consumers who bought ILPs in the last one year look into your fact find or get a qualified financial planner to review them to check for mis-selling, misrepresentation and non disclosure.
After LHL took over MAS in 1997, the insurance industry was revamped, I'm sure all those concerned could remember.
The 16% projection for ILP was forbidden by directive and all companies must use 5% and 9%. Without a 16% projection, such high distribution cost would show up starkly and badly on the BI.
Anyway, we all should know that projection for ILP is meaningless. It's completely unguaranteed depending on the performance of the fund chosen. Realistic expectation (not projection) is about 4% p.a. for conservative, 6% for balanced and anything goes for aggressive (inluding probability of downturn fluctuation loss).
However, many agents abused the high projection to convince clients that's the likely scenario as if on a traditional policy projection. The real issue after choosing a fund to match the client's risk profile and investment horizon is the cost.
I was once approached by a "so called" top financial adviser from Prudential & she hoped I could cancel one of my existing savings policy so that I was able to buy ILP from her. She was unethical as she tried to convince me to transfer all my existing policies from my current adviser to her as she said she is devoted to her clients.
Being one of the top adviser in her company, she is very eloquent. She said: What for u buy term, savings & investment plans separately since ILP can give you a single solution that can solve all your financial needs, be it protection or retirement. She tried to "scare" me by all the possible negative consequences if I did not buy ILP. She stressed that she had nothing to lose by having one client less (me) since she is one of the top advisers. It is me who will be on the losing end if I do not buy ILP.
I wish to highlight to the public that sometimes insurance agents can make use of our emotion weaknesses to sell us insurance plans that ripped us off. Do have a CLEAR MIND and KNOW VERY WELL what you are buying & why u are buying! Some of these agents have no conscience when it comes to selling insurance plans to ignorant people that ripped their hard earned money off.
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