Monday, January 9, 2012

'Life' Sucked Out of People Who Bought Investment Linked Policies

I'm tilted towards investment for investment & insurance for insurance purposes ethos. Let the tools do what they are dedicated for. Buy term insurance & invest the rest yourself. Why buy a unit trust/mutual fund whereby the fund manager makes $$(management fees) regardless of whether your portfolio goes up or down? Heads they win, Tails they win too. Same goes for investment linked insurance policies (ILPs).

I'm astounded that ILPs can take away >40% of accumulated savings as pointed out by Tan Kin Lian who managed to get his letter published in the state controlled media.

ILPs run for many years. I doubt those who bought it are even aware of them working how many hours of their life just to pay for:
- commission to agent
- overriding commission to agency managers
- high marketing expenses, including sales contests & incentive trips

as pointed out by Tan Kin Lian. Is as good as slaving their asses off for a significant portion of a typical workday paying for something that's little value for $$.

If you think financial education is expensive, try ignorance.

2 comments from Robert Kiyosaki which i like:
"Many people seem to think that investing is simply turning it over to a total stranger & hoping that stranger or that company returns your money to you someday. Obviously that is not investing-it is gambling. But worse than gambling, it demonstrates a lack of respect for something most people have given a part of their life, their sweat, blood & time for. "

"Most people do not like working for abusive & cheap people or abusive & cheap companies. Yet when it comes to the money they invest, many people turn their money over to people & companies that seem to care more about their self-interest than the investor's interests. "

Written test won't address ethical issue insurance agents face

MR JIMMY Koh argued that the new test for insurance agents is necessary to equip them to advise their clients properly & fairly on investment-linked policies ('Don't give in to pressure against new insurance test'; Dec 27).

I am afraid that the advocates of this approach are barking up the wrong tree.

Most investment-linked policies have high charges that take away more than 40% of the accumulated savings from the consumers.

Although this is disclosed in the benefit illustration, how many consumers know about it?

How many insurance agents point this out to the consumer?

Even if the consumer asks about the high charges, also known as 'the effect of deduction', dishonest agents may explain them away as the cost of the life insurance protection, when the true cost is only a fraction of the total deduction.

In fact, a large part of the deduction goes to pay for the commission to the agent, the overriding commission to the agency managers, high marketing expenses, including the sales contests & incentive trips & the profit margin of the insurer.

It is hard for agents to offer proper advice when they face such a conflict of interest.

Do they look after the client's interest & forgo the attractive commission?

Such an ethical issue cannot be answered through a written test.

After trying to deal with a similar issue for a few decades, the regulatory authorities in Britain & Australia concluded that the only way to avoid the abuse caused by the conflict of interest was to ban the payment of commission for the sale of life insurance type of investment products.

I hope the Monetary Authority of Singapore will implement a similar approach, to safeguard the financial future of consumers.

Tan Kin Lian

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