Dear Mr. Tan,
I would like to seek your advice on personal finance.
Recently i met up my insurance agent to discuss about long term investment ( retirement, education for kids). I was offered something like, save for 10 years, pay out at the age of 65 years old for 20 years.
The return is guarantee 3% plus bonus add up to total of 4.75%. When i look at the product info, what caught my eye and surprised me is the distribution cost. For total premium paid of around 200k, the distribution cost is around 13,000, which is around 7%! I think it is way too high!
When i showed this concern of high fee to my agent, she sort of like saying, dont envy of what they are paid, cos of the effort and trouble they all experience as agent ( which i do not totally agree). And she is saying this is the norm and what is available in the market.
I believe what she offered is not the only option. I was considering DIY regularly purchase ETF. I only worry if i could consistent have the return of 3%.
What do you think about my situation? Is there anything I can do? Thank you very much.
REPLY
I have seen many benefit illustration of this type of product. The product is bad for consumers.
I agree with your that the distribution cost is too high. If you study the effect of deduction, you will be shocked at the amount that is taken away from your accumulated premium.
Read this book to understand what this "effect of deduction" means.
http://c-pearl.com/cart.aspx?ID=19
http://c-pearl.com/cart.aspx?ID=19
This sort of products won't give you 3%.. It is not guaranteed. It is a very stupid endowment products.
ReplyDeleteMy advice to consumers is don't buy any of endowment products from any companies. THEY LOSE OUT TO INFLATION. In other words your money is NOT working hard for you. Your money is shrinking and when you retire you buy less than what you can NOW. You might as well buy the Singapore Saving Bond(SSB)
Don't trust all insurance agents or salesmen who are disguised as financial consultants.
BUT if you have to buy these rotten products buy from this company which can give you a rebate of commission of 30%...go to www.diyinsurance.com.sg or ask the agent to give you a rebate of 50%. Fair?
Invest regularly in a RSP in ETFs. There are many ETFs available in SGX. Worried that you might not get 3%? Oh , this is chicken feed.
ReplyDeleteYour return s will fluctuate and over time you might get 8% pa, depending on what ETFs you invest. Risk? definitely 'lower' than the rubbish endowment which is far riskier than you think or the agent said.
Remember any investment that will not achieve your goals is considered risky. Can this cash back endowment? No! so it is risky, right?
How do you expect good return when insurance agents earn more than 150% of the premium spread over a period. On top of it there are other charges from set up fees, marketing fees and admin expenses etc etc.
ReplyDeleteRate of return is inversely related to cost . The cost in the first few years eat up your premium and leaving very little for 'saving'.
The best approach is still 'buy term and invest the rest'.
Insurance agents don't like 'btitr' because they get little commission out of this. There you see, it is their pocket that matters and not in your best interest, right? As long as they recommend this kind of par products like wholelife and endowment don't ever believe them that they are recommending you according to your needs. It is BS!!!
Buy directly and use some of the robo-advising websites to find out your needs. Don't let the insurance agents bull you that without them you cannot put in place your personal finances. In fact it is better without them.
Mr Tan is very nice and helpful. I am sure he can help you