Monday, June 08, 2015

How I was conned into losing $2,500 in an investment linked policy

Hi Mr Tan,

I wish to share my experiences of how I lose SGD 2.5k on my investment link plan - which I have terminated in a year. The reason for the termination is not due to the affordability but to the actual realisation that the policy is different from what was told by my agent. Even though I had been very careful with the benefit illustration and being educated in the finance area, I still entered into this trap by my agent who is also my friend.

After six months of working after graduation, I supported my friend by agreeing to listen to his insurance sales talk. He explained to me the needs of insurance, which I agreed that is important. More details of the ILP (investment link plan) are being illustrated and it sounds good. I was disinterested after he showed me the benefit illustration (BI) because the BI did not take account into the inflation. Breaking even after 12 years without taking into consideration of inflation is not ideal - much less the returns after 40 years.

The second meeting, he showed me the fund fact sheet which has a return of about 13%. He explains to me that the fund manager has changed and the fund will continue to perform very well. The 4% to 8% on the BI is very conservative and I have a good 7% spread from the average of 6% return from the BI. That's where I say, well since the 7% spread will be sufficient to cover my doubt on the inflation, I accepted.

On the day I received the policy booklet, I glance through the summary page noting that my fund value is about $500. I assumed $2300 went into protection.

After a few months, another friend sold me hospital plans. The premium are surprising cheap at 300/year and this raised concerns over my ILP which I have been paying at 2800 per year. Then I took out my ILP booklet and read through with a lot of questions raised, particularly about the missing dollars. In total, I read through at least five times, cross referencing terms which I don't understand and compared every tables in the booklet.

That is where I understood perfectly what I am actually buying with many points I am not aware of in the first place and they are,
1) Allocation
2) Actual returns on fund spread sheet does not equal to your actual returns
3) Effects of deductions

Then I ask my agent to show me where every dollars and cents go. This took him many months and he is unable to give me an answer. It was until I decided to visit AXA customer service, which they have brilliant service, and they tell me I can log in online to see the transactions. In short, I know exactly how the transaction works and the surrender value shown on the BI is the value I should look at instead.

After which, I spent months researching on term insurance and manage to do a full based calculation of return projection. That's where I decided I should not continue my plan and pay more to the allocation cost. the surrender value is $250+, a loss of $2550 excluding a $260+ insurance charges if I were to buy a term plan.

That's the experience of my first ILP, a painful learning experience. I take it as a positive lesson and now I am proud to say I am fully aware of how savings-investments should be.

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