Recently, MAS issue a consultation paper with the purpose of greater disclosure of investment-linked policies. Although the consultation paper is technical in nature, everybody should read.
In one of its proposal is to standardise the disclosure of fees. there are 4 layers of fees to be disclosed and I reproduced the graphic to highlight these layers:
Another proposal is to combine the Premium Allocation Rate and the sales charge/bid-offer spread into a single fee called the ‘single entry charge’.
My comments:
I am very sure after you see the graphics above, you probably fainted for a few minutes before recovering. Just by looking at the above graphics, I think it does not take a genius to figure it out that people should avoid investment-linked policies (ILPs). This being said, there are some single premium investment-linked policies that are very similar to unit trusts and does not have so many layers of fees.
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Is it a surprise? Then how do the insurance agents make a lot of money? Why do you think agents are very keen to peddle regular ILPs?
The biggest fee is the commission that goes to the agents.
For regular ILPs the total commission the salesmen received is nearly 150% of the premium? Breakeven is around 15 years if the agents recommend correct fund and no insurance. But if there is insurance the breakeven is 20 years or longer.Is it a saving plan? No!!! it is a losing plan and con plan.
What about single premium?….the sale charge is 5%… Some companies have insurance too and this drags the return down. How to overcome this big hurdle?
Worse , the salesmen are NOT qualified to advise on investment. They are ONLY investment or ILP products salesmen.
It is doomed from the start for the customers. Everything is against the interest of the clients. It is supposed to be better than endowment products; only better ..
Don’t buy anything from these salesmen. Don’t rust them.