Friday, September 5, 2008

Young age. Big premium but poor choice.

My colleague came back from an appointment and complained to me. She was utterly disappointed with what the industry are doing to spoilt people finance instead of helping them.
She just completed a review for one of her client who is in her early 20s. The first insurance decision taken by this young lady 2 years ago was:

1) A $300k Life policy with premium nearly $500/mth (Think the payment is until age 65)
2) An Investment Linked Policy with $400/mth. (Not the type with 100% allocation)

Her current cashflow is very tight now because of these 2 policies. The insurance premium is probably taking up 30% of her total salary. She had already incurred most of her expenses as these policies are more than 2 years old now.

* The 1st interesting part is, "She thought everything is well taken care of since she had spent so much money."
* The 2nd interesting part is, "She purchased this package from the direct distribution channel which are suppsed to provides unbias advices."

I like to share my opinion here.

1) The Life policy taken is excessive. The needs for Death/ptd and Income replacement cover gets lower as the person gets older. It will drop to a minimum when they retires. The most important insurance the person need to have at retirement will be a Hospital/Surgical Policy and Long Term Care policy. It will be okay to keep some Critical Illnesses Policy for Alternative Medical needs at old age. $300k is too much for such alternative medical needs. If she surrender the whole policy 40 yrs later, her yield will probably just be around 3%p.a.

2) An ILP policy with $400/mth incurred advisory fees which take away several months of her savings. A direct investment into Unit Trust ensure 100% of the monthly savings goes into investment. She is able to save so much money from these so called "Advisory Fees".

3) Talking about "Advisory Fees" that the lady had paid for the ILP, I strongly believe that she did not receive any advice from anyone in the first place. Why pay such high "Advisory Fee" when that adviser only help to fill up form. Worse still, there will not be any on-going advice given to the client forever.

4) Do not misunderstand that those sitting in the banks or Direct Distribution Channels must be unbias with their advice just because they are salaried based and not commission driven. Sometimes, these advisers are more daring and hungry than agents because they have high quotas to meet and many take this career as a short-term transition. They often job-hop among banks and leave once they make enough money. They don't look long term by doing a goob job.

5) Such group of people always think that their insurance and savings are well taken care of just because of the amount of money they already put in. They avoid seeing a qualified adviser for review.


Anonymous said...

They might be unbiased but certainly you can see the adviser isn't qualified and unethical.
The poor young girl is over insured. She is wasting a lot of money if she carries on. It is better to cut losses and to have something that meets her needs. It looks she is now in difficulty.
I can think of these reasons.
1. the adviser wasn't interested in the interest of the girl..sold her big cases to improve the quota.
2. the young girl is the typical stupid customer. They always want their way. They think they know. I want this ; I like this and i like that. This meets my needs and that...this typifies the customers.
Her attitude presents great opportunity for the adviser to exploit her and eventually she becomes a victim and she is also the victim of her own stupidity.
this is 'trying to be smart"

Anonymous said...

Salesmen don't give advice and so are the consultants.. Maybe she thought thought salesmen with title like consultant give better advice. Worse some people think that senior and executive financial consultants from one local company can give better advice..If they sell you some rotten products you should consider lucky otherwise you get cheated...