Saturday, October 17, 2009

In reply to Mr Tan's online forum letter

I'm not a fan of ILP at all but I like to present the other side of it and write something fairer about insurance agents. I had sent to reply Straits Times Forum. I'm not sure if they will publish it as they had rejected me before on other topics. No harm trying again.


I refer to Mr Tan Kin Lian’s Forum online letter “Hidden Charges in Insurance Policies” on 13th October.

Mr Tan seems to highlight only the disadvantages of an Investment Linked Policy without writing on how the policyholder may benefit from it.
There is a yearly renewable term assurance coverage incorporated into an ILP which allows the policyholder to get the necessary coverage at a very low premium which is normally lower than a level-term plan. This will allow the policyholder to direct a larger portion of the premium into investments compared to the policyholder who gets a pure term plan.
When the policyholder is to reach near retirement age where the mortality charges increase significantly, the policyholder will be advised to reduce his coverage as his investment should have accumulated to a level where he can self-insure a larger part of the original Sum Assured and the fact that his insurance needs should have decreased by then.

Mr Tan also seems to emphasize that the unallocated investments during the initial years are used to pay a high commission to the agent. I’ll like to highlight that not all insurance companies pay a high commission. There are companies that charge the policyholder reasonably and pay the agent reasonably.

There are commissions paid to an agent for whatever plan that he or she recommends under the current environment where most Singaporeans are seemingly not willing to pay a fee for advice. Whether it’s a term, Medical or Accident plan, there are commissions paid and ILP is of no exception. The agents should be compensated for the advice, time and the years of service that he/she have to provide for the policyholder.

Mr Tan’s letter might create an impression that all Insurance agents have intent to hide charges from their customers. There are certainly black sheep in the industry but they should not be grouped together with the honest group of advisers who are transparent with their clients.
The letter might also create another impression that the insurance agent gets 100% of the unallocated investments. We must not forget that there are many other departments in an insurance company, including the CEO who are direct or indirect beneficiaries of all these funds.

I agree with Mr Tan that the current charges for ILP are generally high. I will encourage buyers to make comparison before making a decision to get into such plans. I also like to propose to MAS that they can consider setting a cap on how much the insurance company can charge for all such policy and I also look forward on more innovations from the insurers on how they can design a plan for the benefit of the policyholder, company as well as the adviser.



Anonymous said...

Your letter was published today in the newspaper.

Anonymous said...

You are right , Adrain , that Mr. Tan has been over zealous to putting down the ILP. I, for one , too think that regular ILPs are superior than wholelife traditional although both are still evils.
I think Mr. Tan is raising issues on the huge upfront and some on going charges not declared by the company other than the mortality.The huge upfront and recurrent admin charges will stifle the growth of the plan. The traditional wholelife is even worse.
Hope MAS will set guidelines on the product design and commission.

Anonymous said...

After some time, people will forget TKL's letter.

Just like people have forgotten their losses in tech unit trusts back in the early 2000s.

Anonymous said...

Regular ILPs are rip off too like the wholelife and endowment products./
Just concentrate on these three products and agents can qualify for mdrt. Wonder how these products can meet the protection needs and same time save for retirement.

Khiat Han Hwee Adrian said...

Ya. There was some adjustments to what I wrote including the heading. Though I'm not a fan of ILP but just like to bring out the other side of it too.

Anonymous said...

Hi Adrian,

Congrats on your first appearance in the newspaper, and thank you for your sharing. But I am a bit disappointed and pertubed by your comments. As a fellow CFP, I hope you could live up to its gold standards of competence and ethical pratice. You may wish to relook at what a regular premium ILP is and if the strategy behind it (DCA) really works over the long run which it's intended. It's irresponsible and it appears silly on you to make remarks (in a national newspaper) based on half-baked truth and knowledge. I shall not elaborate further on regular ILP, you gotta study it yourself. Thank you..

Anonymous said...

Anon October 19, 2009 11:33 AM,
you are the one who should relook at your ethics and competence. I am sure as CFP you do conduct due diligence on products before you decide to recommend to your clients. Obviously, you don't. You are motivated by the huge commission.Any idiot can immediately say that the high cost of ILPs will erode the return . Instead of 3 years breakeven regular ILPs will take 15 years and they are no better than the despicable wholelife plan.
I am very disappointed that there are CFPs who behave like the salesman product pushers. I think the disciplinary committee should be informed of this.
Although I don't agree with Adrain completely I know he is treading carefully to balance between making a decent living and fleecing the clients and which all product pushers do without qualms.
Adrain, keep up the good work. Speak up and stand up for the truth and ethics. Remember, ethics is hallmark of CFP

Anonymous said...

October 19, 2009 6:31 PM

Aiyo sir, you macam not very literate like that. Simple English also dun understand? Which part of my post says regular ILP is good? I rebuked Adrian's claim in ST forum that "regular ILPs can benefit customers". I really cannot see how it can. So I suggested he relook into this lousy plan first before he says it's good..

Anonymous said...


Try to sell ETF if you can.

If you cannot, then unit trust. Chose a global plan if possible.

Forget about ILP.

In selling unit trust, try to encourage your clients to save under SRS to achieve some tax savings.

Then arrange a regular monthly investment plan for them. Keep it small.

That way in the even of a downturn, clients would not be hit so hard.

Encourage them to invest long term. That way you have a life long income too.