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Another victim of Investment Linked Policies

>> Sunday, September 20, 2009

I have met many who were sold these Investment-Linked Policies (ILPs) by a friend or relative or even worse, agents who have high sales records. They highlighted all the benefits illustrated like high coverage for low insurance charges and high returns of 9%.

However, after paying a few years of premium, they found that the portfolio value is only a fraction of what they have paid. They tried contacting the agent only to find that he/she is no longer with the company or is ignored by those with high sales as they are more focused on selling more ILPs to others. Even if you managed to contact them, would you still trust someone who sold you this while hiding the charges.

With little recourse, they approach others like myself who are willing to advise for help. It comes with astonishment when I bring to their attention:

  • The high sales charges that only a fraction of their premiums go to purchasing of units for the initial years;
  • The "Non-guaranteed" wording on the illustration of 5% and 9% returns;
  • The annual management fees charges as a percentage of total portfolio value, usually about 2%;
  • A monthly administrative fee of about $5;
  • The fund choices are restricted to the company funds only;
  • Insurance charges increases with age and can be substantially more than premiums paid after a certain age, resulting in liquidating of units in the fund to pay the additional.
Even disregarding the high initial sales charges, the fund has to perform consistently much more than 11% returns to achieve the 9% illustrated, after deducting the management, administrative and insurance charges.

They are angered that these were not highlighted and wonder what can be done. As the damage is already done, there is no way to recover the charges paid. If they were to surrender, many find it difficult to stomach the losses, and holding on will depend largely on the performance of the fund. However, consider this, if the fund has not been performing well in the last few years, what confidence do you have they will perform well the next few years.

This is just the tip of the iceberg. Surrendering the policy, even if it made a profit, means a lost of protection coverage (which makes one wonder even if returns are achieved, you cannot surrender to realize the return). It is fortunate if one is still in good health and able to purchase alternative coverage (though at a higher premium due to age). However, for those who can't, they have to keep the ILP or risk having no coverage at all.

Keep insurance as pure insurance and investments as pure investments so that one will not affect the other as they have different objectives. Insurance is for wealth protection, so that you will still be insured regardless of the performance of the investment. Investment is for wealth accumulation, so that you can realize your returns without compromising your protection.

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Agent didn't mention hefty charges
ST Forum. Sep 20, 2009.

I bought an investment-linked policy from Great Eastern Life in late November 2005.

My yearly premium is $1,800 and the policy provided life insurance protection of $80,000 and critical illness coverage of $100,000.

The insurance agent said the protection is very cheap but she did not mention the huge charges of 85% for the first year, 50% for the second year and 25% for the third year, making a total of 160%.

After 3 years, I just realized that my cash value is less than $1,000, compared to the total premium of $5,400 paid.

Where did my money go, and why should the charges be so high?

Why did the insurance agent not advise me about these charges when the policy was sold to me?

If she had advised me, I would not have bought the policy.

My husband also bought an investment-linked policy from the same agent.

I hope the MAS can help ensure that ordinary cusumers are given a fair deal, and not taken for ride because of our ignorance and trust in the insurance company.

Olivia Kam (Mdm)
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