Regular Premium ILPs

In a Regular Premium Investment Linked Policy offered by some Insurance Companies, there are two charges that frequently confuses the buyer.

They are "Advisory Fee" and "Insurance Charges"

Take an example from Company "P"

In the middle of the 20 over pages of the Benefit Illustration. There is one paragraph that states

Premium Allocation

Year 1 => 15%

Year 2-3 => 50%

Year 4-9 => 100%

Year 10 onwards => 105%

This allocation means that 185% are allocated to the Insurance company as advisory charges in the 1st 3 years. If $2,000 are invested yearly, $3,700 are taken away.

Insurance Charges

* This is the portion that the investor pay for the insurance on a yearly renewable basis. The premium rate increased from around 40 yrs old and significantly increased from 50 yrs old.

* This charge is illustrated in its appendix showing 2 sets of dense table.

* Investor frequently did not know the amount that he or she is paying for insurance at various age. Sometimes to an extent that the insurance premium is more than the premium that he pays monthly.

So what confused the investor?

a) The advisor may rush thru explaining on the allocation rate. They will not let them know that the charges are actually quite excessive.

b) The insurance charges at varying age should be illustrated. Buyers sometimes thought that the coverage is free.

I am not against insurance people selling ILPs and earn some advisory fee but the charges should be modest and reasonable. In my opinion, 185% of 1 year premium is excessive. Hope regulators will put a cap to this advisory fees and more transparency in the Insurance Charges.