Tuesday, November 11, 2008

What you may and may not hear about Regular Premium ILP.

I get into debates occasionally with my fellow colleagues or friends in the industry about Regular Premium ILP. It irritates me whenever I saw such plans being recommended. I'll always ask them why was this plan recommended and under what circumstances will the client buy the idea of getting such plan of substantially higher cost.

They will always give their views and I'll present mine but never into a heated argument. They offered valid views but I cannot accept it. Perhaps I can share with you how some people are being convinced into buying a regular premium ILP.

1) Spending more time on the concept of buy term, invest the difference and dollar-cost averaging
* They will focus on this point and the potential returns. A lot of time will be spent in this area.
* As the clients get so focused on the concept and returns, agent is likely able put little emphasis into the charges in the later part.
* The client may not realise how these charges will eat into their so called "Potential Returns"
* However, when client start asking about charges, agent will start justifying by.....

2) Comparing a Life policy with an ILP
* Life policy has no cash value in the 1st 3 years. ILP have cash value from year 1. So ILP better. * Life policy have their charges, ILP also have their charges. The charges are more transparent for ILP and you have the option on how you want to invest your monies. So ILP better
* With Life policy, you can only get $50k with $100/mth, with ILP, you can get $200k coverage. So ILP better
* With Life policy, you have to keep paying premium, ILP, you can take premium holiday and stop as and when you need to. So ILP better.
* With Life policy or Endowment, you need to take a policy loan if in need of money, with ILP, you don't need to as you can sell your units to get the money. So much flexibility. So ILP better.
* They can offer so many reason that it seem foolish not to get an ILP.
* However, if client is slightly smarter and asked about Term policy, agent will justify by saying......

3) Policy will not lapse compared to a Term policy
* If you buy term policy and you forgot to pay premium, Term policy will lapse, ILP will not because there are units in .
* Client also scared after listening that they may really forget to pay premium for whatsoever reason and cover totally lapse.
* As the term plan used in ILP is Yearly Renewable Term riders, the premium will be slightly lower compared to a Level Term plan.
* If client ask why charges seems high, agent will say......

4) Bonus Units after X years
* They focus on the bonus unit after, say 105% of value 7 years. Sounds like they are giving you $105/mth when you give them $100/mth. But after taking so much from you...
* Client always feel good when they feel that they are getting something free in return.
* When client still want to consider, agent can say......

5) We are having some promotion here.
* If charges is not a issue to the client, there may not seems to be a reason to reject the agent.
* The agent can offer them some freebies such as vouchers, MP3, even LCD TVs, etc. We often seen these in roadshows
* This promotion is only for this roadshow. Since you are already planning to save, why not start today?


Some of the things the adviser will try not to reveal too much...
1) Charges can be as high as 2 times your annual premium over the 1st 3 years. If you put $6,000 over 3 years, as much as $4,000 are paid to the company and agent.
2) Bid-offer spread are normally 5% compared to 2-3% for Unit Trust. For a $100/mth savings, it equates to 2-3% immediate loss to your savings from day 1.
3) Your insurance charges get so much higher, especially when you reach 40 yrs old. They will never tell you how much the same insurance cost at the age of 60.
4) Your monthly policy fees can be as much as $6/mth. If you are savings $100/mth, $6 are taken out and equate to 6% immediate loss to your savings.
5) They will try not to tell you how long your money will take to breakeven.


My views on the charges issue:
* Ideally, zero charge with all the advices is the best for client. But it will also mean advisers like us can start eating grass. If client pay peanuts advisory fees or not even willing to pay a single cent for all the work and research the adviser did, then its not fair to the adviser as well.
* My colleagues said that I'm guilty of earning money which we rightfully deserve. There are actually nothing wrong with this plan. However, I still find the charges for a regular Premium ILP to be excessive and to be unacceptable. In my opinion, there must be a balance.
* Some company charge a more modest advisory fee like the Ideal Policy from NTUC Income and the achiever plan from AIA. Some are excessive like the Prulink from Prudential or Manulink from Manulife, etc
* IFA platform normally allow 100% allocation from day 1 for RSP(Regular Savings Plan). Lower Bid-Offer spread of 2.5% to 3% and but a wrap fee of 0.5% to 1%p.a. Its a very modest charge and allow most of clients money to tap into the investment from Day 1. Adviser will have a vested interest towards their clients money as well.

Well. I just like to refer to my previous posting. You decide if this is a lemon yourself.


Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

I can only say... There are all sorts of people in the world with all sorts of weird logic and reasoning.

Ultimately, your job is to sell, their job is to buy. Even if you have a wealth of knowledge on the best way to insure and invest, if you can't convey that to the customer, you have failed.

I think you are not suitable to be an IFA lah. YOu can't sell the product nor yourself.

Don't believe those crackpots who say you dont need to sell. They are bluffing you.

They are selling themselves by publishing articles in magazines or conducting workshops/talks. Those events build credibility on the person. It's a wellknown technique to sell yourself.

You aren't doing any of those..so that's why you can't sell.

Derek said...

Hi Adrian,

Nice article but the title is a little misleading. I believe you are discouraging users on not getting a ILP plan? I too do not advocate ILPs.


SGDividends said...

Hi Adrian,

From a customer's point of view, i think you have shown that you have the best interest at heart for your clients. Frankly, you have been very very very frank in revealing the ins and outs of insurance.Seriously. i think people should go to you for their insurance needs. ( frankly we would go to you but we already have a personal , long term close friend who is serving us and on a friendship basis we trust him too).

Having said that, what we feel is that this is your income at stake here. So well...

Just hope that many people go to you and the volume will make up for it.

Cheers...best site for insurance knowledge!

sgdividends Team

Anonymous said...

ILPs are better than wholelife products and endowments. There is nothing wrong with ILPs but there is plenty with sellers.

Anonymous said...

Even as you talk about fee based financial advice, you may need to think of paying others a fee to improve on your language. Find a personal tutor or join an adults' language class. It will be a worthwhile investment.

Anonymous said...

about points 1, 2, 4 and 5. It's all about whether the client convince u he dont need the policy, or you confuse the client into buying the idea. LOL.

as for point 3, I suggest that you read up or study human behavior in times of panic. Read people's faces and gauge their judgment and behavior. BTITR sounds exciting and beneficial to client in theory, however never neglect to reveal the risks of a full reliance on term policies. The lapsing part...

when shit hits the fan and these sgfund BTITR people encounter cashflow problems, time to take out the popcorn and enjoy the show, bro. The worst offenders are those who repeat the same thing over and over again like broken tape, how BTITR offers better returns. The BTITR people on sgfunds who really knows what they're doing...can count with one hand how many of them there are.

Khiat Han Hwee Adrian said...

Thanks for all your feedbacks.

Actually I'm not advocating BTITR. My objective is simple. To ensure sufficient coverage for my client at the lowest cost, so that they have money to plan their other needs such as retirement and Children Education needs.

I'm just not comfortable seeing people buying a Whole Life Plan especially if their dependency needs are not adequately covered and if their budget is so tight that they can't save money for other needs...

I'm equally not comfortable seeing people getting a Regular ILP because I know that there is a lower cost way of getting it.

However, most people are not getting the coverage they need and still not having enough money to invest for their longer term goals.

Anonymous said...

A lot of diehards customers out there. You may plan to their best interest but they don't appreciate or trust you. They are so used to hearing about WL and endowment and not that they know about them they are simply dumb. Customers are stupid and they are eexploited by greedy agents .

Anonymous said...

Between wholelife and regular ILPs
the ILPs are better assuming no abuse by insurance agents. Insurance agents manipulate this product's features to sell to unwary customers.
If used properly regular ILP is anytime better than the rigid WL which is for the no brain and greedy agents.

Anonymous said...


This blog website itself is not doing you any good in terms of publicity and public image. If you remain anonymous, it will be all right. But all your clients and prospects can read your blog. Just step backward and read your blog entries from a 3rd party point of view and you can see what I mean.

Your frequent rattling had also attracted not-so-constructive comments in your entries. This make your blog second only to TKL in terms of perssimism. TKL is already a financially independent person and he is doing what he is doing just for fun. For you - you still need to earn a living.

My suggestion is to shut down this entire blog and launch a professional website. yes, you'll indeed need to pay a fee to improve the website and have your image "upgraded."

Anonymous said...

Hi adrain,

On the issue of ILP, how come you cant focus on the flexibility that you can make use from it?

Seriously ILP is the only plan that can get you higher coverage with cash value(esp when people got tight budge these days).As for the mortality charges, you can reduce your sum assured to a small amount when you have a limited whole life to compensate for final expenses. You can take out the money anytime(depends on mkt condition) and the part on lapsing, it is quite valid because it is quite impossible for an agent to contact the client about failure to deduct premium when he has about 1000++ clients.

Most people does not really care about the few percent since we are talking about few dollar charges per mth which is quite insignificant in today society. Anytime you buy a meal at mac, you will spend up to $7. Do you really need that meal? No..but why do u still buy?

Well i guess we can't just pin point on which product is bad or good because ultimately people still need to work. Dont go around spoiling people rice bowl when the problem is not very big. For sure, it is not a mini bond issue! =)

Khiat Han Hwee Adrian said...

I feel that ILP charges should be capped at certain level. To take away as much as 200% of 1st year premium and high policy fee of $6/mth is excessive. The opportunity cost is too high for the consumer and its not a fair deal to them.

I feel that ILPs can stay but should be modified to make it win-win for adviser-client.

Anonymous said...

you are just another of the green eye
agents out there. Adrain is doing very well here. His blog gives everything and not one sided. People will definitely like his blog because they get to see 2 sides of the products , unbiased.Inusrance agents will not like his blog because it exposes the unethical practices and the dirts of these people. He is not whinning , he is lamenting that there are a lot of unscrupulous agents out there who fleece the consumers.
What you mean a "professional website"? an advertisement website to advertise products?

you mean his blog will break a lot rice bowls. I certainly hope so .This blog only breaks the rice bowls of theives and robbers. Are you not for it?
As to the extend of damage these unscrupulous agents will do to their customers, you will be surprised it is even worse than the minibomb...Whatever, these agents have to be reported to MAS and expelled from the industry.

Anonymous said...

LOL on the part about MAS punishing evil agents.

Go on, Adrian. Tell him the story about the people who licences were revoked for churning, yet ALLOWED to come back again.

LOL MAS doing something. M for Malaysia, u mean. They more busy than their SG counterpart.

Anonymous said...


Well that is the point. ILP is good but it's just that the charges can be quite high. So the problem should be express to insurance coy or MAS to regulate.

It is not the fault of those agent out there who is trying to insure people based on their super tight budget. I am an agent myself and i am also not bias towards anything but just feel that the way you penalised tied agent seem so bad.

i got client who want everything but got little budget for it and want cash value (term is out). So can u imagine what i can intro to him? Only ILP will be able to fufil his needs, not mine. Do i have a choice to force him to buy a term insurance that he doesnt like?

Seriously as a IFA, are you guys so sure you know every single products and really recommend the good plan that earn peanuts? Maybe you will but im sure there are IFA out there who dont practise. Hence there are still bad egg in ya line. So should i say IFA is bad?

4.12 guy

Khiat Han Hwee Adrian said...

True that some people will always insist what they want. They might have done all the research, asked all the questions, know all the charges and can fit all his needs.

As responsible advisors, our role is to guage if this person really knows what he is doing and to make sure that they buy into a plan with their eyes open?"

There are good or bad advisers whether in tied agency or IFAs. I've been through both before. Looking back, I'm glad I took the chop and move. There are many things I can do now than before. The new things I can do are for the good of my current and prospective clients.

Khiat Han Hwee Adrian said...

I saw some comments saying about breaking of rice bowl. Don't worry on that ya. My blog don't generate traffic traffic like TKL.

It is generally read by my own friends, clients and fellow advisers. I'm only trying to inform and protect my friends, clients.

Financial Planning is my passion and writing is my interest. I know my knowledge is lacking and English is terrible but I believe things will only get better. I'll be more knowledgeable with time and my writing skills will improve.

Anonymous said...

someone said:
i got client who want everything but got little budget for it and want cash value (term is out). So can u imagine what i can intro to him? Only ILP will be able to fufil his needs, not mine. Do i have a choice to force him to buy a term insurance that he doesnt like?

As the first priority in financial planning is insurance, not wealth accomulation, this client should buy a pure term insurance. Since the client insists of a cash value, he is going against the adviser's advice. If I were the adviser, I will not transact this request at all. Does adviser know that once they transact this, they receive commissions which make them liable for mis-selling? It is better to tell the client to fly kite and not earn this blood commission. Nobody is forcing this adviser to sell an ILP which he knows is not benefiting. Obviously the adviser is greedy and hence went along with the client's insistence.

Anonymous said...

There're only 2 types of people who BTITR.

1) one who does it and actually knows what he's doing.
2) one who only repeats BTITR concepts like a broken record.

for the 2nd grp of people, i've my popcorn ready for a great show when disaster strikes.

plenty of know-it-alls in these world. Now many people pretend to be savvy about structured products and why they are bad. 2 years ago, when poeple wrote letter to the press slamming structured products, these know-it-all people said NOTHING! Funny how some people's spider sense only gets activated AFTER the disastrous incident. I thought spider sense is supposed to be activated BEFORE a disaster and not after.

Anonymous said...

Hi Adrain

Hi! I bought the HSBC Life Manager Plus one year ago and paid upfront a $12,000 annual premium, but I did tell the adviser that I *might* need the money in 1 year’s time. His reply was that this plan would be suitable as I can take the money out if I really need it. At the moment, I don’t really need the money, but don’t feel good after reading about your concerns on this type of plan.

I am not a financial-smart person and frankly speaking, I am still rather confused by reading your explanation. Can you please help:

1) Should I continue with this plan and pay the 2nd year premium (12K)?

2) Or, should I close this plan altogether? What would be the lost?

Thank you.

Khiat Han Hwee Adrian said...

Hi KS,

I advice you to seek help of an ethical and professional adviser on your case. I can't answer your question without understanding why you sign up this plan in the first place.

If you want to know what is lost, ask the adviser who sold this to you. I estimate that your $12,000 is only worth $2,500 now. You had given $9,500 to the adviser and bank.