A life insurance company in Singapore specialised in selling investment linked policies (ILP). They also advertised regularly to improve their corporate image - as caring for their customers.
In my book on life insurance, there is an example of a typical policy that is sold by this insurance company. The projected cash value based on an investment yield of 5% gives a net yield of 1.2%. The reduction in yield is 3.8%. Based on an investment yield of 9%, the net yield is 4.8%, giving a reduction of 4.2%.
Any investment that takes away more than 1.5% in yield (to provide the investment service and insurance coverage) is bad for consumers. The reduction of 4% is far too much.
The difference in payout at the end of 25 years, based on a reduction of yield of 1.5% (which is far) and a reduction of 4% (which is far too much) is 40%. If your cash value at the end of 25 years is $200,000, you should be getting $280,000 under a fairer contract. Most consumers do not even know the difference! The insurance agent does not tell you about this.
You can find a few examples of this type in my book, Get Value from your Life Insurance.
In my book on life insurance, there is an example of a typical policy that is sold by this insurance company. The projected cash value based on an investment yield of 5% gives a net yield of 1.2%. The reduction in yield is 3.8%. Based on an investment yield of 9%, the net yield is 4.8%, giving a reduction of 4.2%.
Any investment that takes away more than 1.5% in yield (to provide the investment service and insurance coverage) is bad for consumers. The reduction of 4% is far too much.
The difference in payout at the end of 25 years, based on a reduction of yield of 1.5% (which is far) and a reduction of 4% (which is far too much) is 40%. If your cash value at the end of 25 years is $200,000, you should be getting $280,000 under a fairer contract. Most consumers do not even know the difference! The insurance agent does not tell you about this.
You can find a few examples of this type in my book, Get Value from your Life Insurance.
2 comments:
Actually regular premium(RP) ILPs are much better than wholelife products because of its flexibilities but its strengths are also its weaknesses due to abuses.
I remember in your time many years ago you also had product of this nature but because of the low commission and ALSO the incompetence of the salesmen it died a natural death. This goes to show good products usually good for consumers are never good for the salesmen, there is conflict of interest.I hope consumers are aware of this relationship. Why insurance salesmen like to push those wholelife and endowment and RP ILPs is because of the high commission. High commission is not good for consumers . It erodes return.Cost and return have inverse relationship.
I had the old RP ILP during your time and I liked it very much because I could adjust my coverage according to my needs and on top of it I got good return.Alas , due to greed this good product never got off the ground.
RP ILPs are superior to wholelife if not for the high commission and abuses and incompetence of salesmen.(NB.I don't like both RP ILPs and WL because of the high cost). RP ILPs can be designed according to your needs, time horizon and financial constraints and you can choose your investment vehicles unlike WL which is a one size fits all.Worse, WL is sold by insurance salesmen like cure everything koyok and snakeoil.
The best way to address your needs is to separate your protection needs and saving. This approach is cost saving and gives your higher return, 6% at least without the riskiness of the seemingly safe WL and endowment.
More importantly, you have to find a competent and honest(both these traits are not separable) financial adviser to help you and definitely NOT a salesman .Be careful of the salesmen in disguise.They have all sorts of imaginable financial titles but it is not difficult to see through the snakeoil salesman beneath.
All the best.
The Insider
The projected yield of 9% is too high. A more realistic yield is 6.5%. After reducing by 4%, the net yield is only 2.5% per annum. This is unattractive.
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