Newbie Guide: How to Find a Good Agent for Investment & Insurance?

[rab-rab]

Hi there, hope this may help;
before trusting anyone, always check for the personal background and get some information about the person before having any transaction to avoid scam

 

[Kheetat]

From your sales pitch it seems like the main selling point of ILP is the Burger King slogan, Have It Your Way. Pay as much or as little premiums as you like, and be your own fund manager! Invest with whatever allocation and in whatever funds you choose, and whenever you change your mind you can switch for free.

It all sounds wonderful. You are flattering people and selling them hope. But ILPs will be disastrous for most of them.

Let's face it, most people are no good at investing. Instead of reading books and doing one's homework, they act on superstition, sales pitches, tips or whims of fancy. Nobody reads the prospectus. They chase performance, so they end up selling a stock/fund just when it is about to outperform so they can buy another stock/fund just when it is about to underperform. Most have no idea what performance they should expect and how much they are paying in fees and charges. They look at a 9% p.a. return projection in their policy and think that is easy to achieve, no sweat. They do not see how it will take years just to reach the total amount of premiums they pay out, because they either don't read the policy documents or don't understand them, and certainly the agent is not about to tell the client just how much commission he and his company is making out of the deal.

Maybe you are careful and honest enough to sell ILPs only to people who are knowledgeable about insurance and investing, as opposed to people who cannot tell the difference between a stock and a bond. Good for you! But even with the best investors, the game is rigged against them. The game is rigged because with the high distribution cost of the ILP, the 3% initial sales charges for all the funds and the >1% annual management fees, it's quite unlikely that any ILP investor will do well unless in roaring bull markets. Funds as a whole are the market, so the average return for a fund is the market return minus fees - with their fees so high, the result is poor performance. In such a context, free switching is a sad joke and an excuse for more trading and more disappointment.

So it is almost guaranteed that people will get poor investment returns through them. As if that is not bad enough, the worse thing is that under an ILP a person's investment performance and the state of the markets at the time directly affects how much insurance he gets. What is the point of insurance? 100 people pay premiums and pool their money so that when the 1 random unlucky guy dies or contracts a serious illness, he and his family are not destitute. But with ILPs, if that unlucky guy did well as an investor and the markets were kind to him, he gets more. What about the triply unlucky guy - lousy in investing, unlucky in health, and has to claim at the bottom of the market? He gets less, maybe only the pathetic basic benefit. What is it, 10 times the annual premium? ($200/mth -> $24,000 payout). Completely inadequate for his needs, and a small fraction of what he would have gotten with a term or even whole life plan.

I believe if ILPs are explained to people like this they will see the point: this is not insurance, or at least, this is not how I want my insurance to work.

I do agree with you that most people don't read the policy documents and forgets everything the next day after meeting us.

You are also right that people chase performance, and end up selling a stock/fund just when it is about to under perform. Thats more relevant when we talked about single premium investments. People buy and sell at the wrong time.

As for regular ILP, most of the distribution cost are spread across in the first few years of the policy. And similar to all other investment, there will be a sales charge and administrative fee for it.

Just like your previous example, if say that Mr A chase performance and seeing that the fund is falling, he may exercise fund switches to funds that are less volatile. For such instances, Mr A remained invested and protected and saved on bid/offer spread again.

All ILP comes with a guarantee benefit amount. As long as the policy is in force, there will be a guaranteed benefit payout as stated in the certificate of policy. If Mr A is unlucky with investment, and health and made a claim for death/critical illness/total permanent disability at the bottom of the market, he will receive a sum assured of $200,000 to $400,000, depending on his annual income. (this is due to the financial underwriting and guidelines of not being over-insured - usually about 10times of annual income)

I hope this will give you a broader understanding of what ILP can do.

 

[Kheetat]

Hi there, hope this may help;
before trusting anyone, always check for the personal background and get some information about the person before having any transaction to avoid scam

With the new MAS new framework, all licensed agents have a representative number that you can use to obtain information about that agent.

 

[HandsTied]

As for regular ILP, most of the distribution cost are spread across in the first few years of the policy. And similar to all other investment, there will be a sales charge and administrative fee for it.

I'm pleasantly surprised - this is quite a useful and succinct summary of ILP charges.

For insurance plans, policyholders pay a distribution cost as part of their insurance premium.

For investment funds, investors pay investment charges, such as sales charges, management fees etc for the money invested.

For regular ILP, policyholders enjoy the "best of both worlds" by paying both distribution costs and investment charges on their insurance premiums, and also both distribution costs and invesment charges on their money invested.

I hope this will give you a broader understanding of what ILP can do.

We understand that it's very good for financial freedoms for some people - The financial salespeople selling such products.

 

[Kheetat]

I'm pleasantly surprised - this is quite a useful and succinct summary of ILP charges.

For insurance plans, policyholders pay a distribution cost as part of their insurance premium.

For investment funds, investors pay investment charges, such as sales charges, management fees etc for the money invested.

For regular ILP, policyholders enjoy the "best of both worlds" by paying both distribution costs and investment charges on their insurance premiums, and also both distribution costs and invesment charges on their money invested.



We understand that it's very good for financial freedoms for some people - The financial salespeople selling such products.

All insurance products have distribution cost, same for term plan, wholelife plan and also endowment plans. It has zero cash values in the first 1st and/or 2nd year. so what will be your opinions on it then?

Even for BITR,

For term insurance plans, policyholders pay a distribution cost as part of their insurance premium.

For investment funds/stocks, investors pay investment charges, such as sales charges, management fees etc for the money invested.

There for the difference is?

 

[HandsTied]

All insurance products have distribution cost, same for term plan, wholelife plan and also endowment plans. It has zero cash values in the first 1st and/or 2nd year. so what will be your opinions on it then?

Even for BITR,

For term insurance plans, policyholders pay a distribution cost as part of their insurance premium.

For investment funds/stocks, investors pay investment charges, such as sales charges, management fees etc for the money invested.

There for the difference is?

I think endowment plans nowadays give bad value and a risk-adjusted investment portfolio with low cost funds can work much better for people. Whole life plans are also expensive, but it may be necessary for as a supplement for people who require whole life coverage and do not want to rely on BTIR entirely.

I am not against costs and charges (I made a living through such costs too and intend to do so again in the near future). The difference is - whereas BTIR pays the necessary charges for each aspect, ie. Distribution costs for insurance and investment charges for investment, regular premium ILP "double-charges".

In an ILP plan of annual premium of $2,000, distribution cost of about 80-90% is charged on the whole premium in the first year. Assurance charges are deducted from the funds suffering a bid-offer spread unnecessarily. Thus very little to no money is invested from the start.

In a BTIR strategy of annual budget of $2,000, the distribution cost of 80-90% is only charged on the term premium (maybe $200-300 annually). The bid-offer is only charged on the money invested which does not suffer the distribution cost. Thus, most of the money is invested from the start.

This explains why a BTIR strategy is superior to an ILP because it does not incur unnecessary high upfront costs - as much as two years of premium in the first few years of the policy. This huge costs are greatly exacerbated by the time value of money. The effect of the charges are easily understood by simply comparing the projections of an ILP plan vs a BTIR strategy.

An ILP is a good concept but because of the structure of the charges, it becomes a lousy deal for the consumer. If the charges of ILP were made equitable, that is - insurance costs only on the insurance premium and investment charges only on the investment, it will be a good plan (essentially a BTIR bundle).

In any case, comparing BTIR vs ILP may be irrelevant because there are people, particularly young adults who just started working, who can only afford one thing. Term insurance is the only way they can afford adequate protection.

 

[Kheetat]

I think endowment plans nowadays give bad value and a risk-adjusted investment portfolio with low cost funds can work much better for people. Whole life plans are also expensive, but it may be necessary for as a supplement for people who require whole life coverage and do not want to rely on BTIR entirely.

I am not against costs and charges (I made a living through such costs too and intend to do so again in the near future). The difference is - whereas BTIR pays the necessary charges for each aspect, ie. Distribution costs for insurance and investment charges for investment, regular premium ILP "double-charges".

In an ILP plan of annual premium of $2,000, distribution cost of about 80-90% is charged on the whole premium in the first year. Assurance charges are deducted from the funds suffering a bid-offer spread unnecessarily. Thus very little to no money is invested from the start.

In a BTIR strategy of annual budget of $2,000, the distribution cost of 80-90% is only charged on the term premium (maybe $200-300 annually). The bid-offer is only charged on the money invested which does not suffer the distribution cost. Thus, most of the money is invested from the start.

This explains why a BTIR strategy is superior to an ILP because it does not incur unnecessary high upfront costs - as much as two years of premium in the first few years of the policy. This huge costs are greatly exacerbated by the time value of money. The effect of the charges are easily understood by simply comparing the projections of an ILP plan vs a BTIR strategy.

An ILP is a good concept but because of the structure of the charges, it becomes a lousy deal for the consumer. If the charges of ILP were made equitable, that is - insurance costs only on the insurance premium and investment charges only on the investment, it will be a good plan (essentially a BTIR bundle).

In any case, comparing BTIR vs ILP may be irrelevant because there are people, particularly young adults who just started working, who can only afford one thing. Term insurance is the only way they can afford adequate protection.

I do agree on your views on endowment plans. The returns it generated can be easily mirrored with a good mixture of investments. However, there is a group of individuals who are not comfortable with investment. Thus they are left with no choice but to opt for endowment savings plan.

Puting in comparison, ILP offers wholelife cover while a term expires at certain age. Opting for a term till 99 would cost about the same as a regular ILP.

For young adults, they could always start with $100 and get covered for about $180,000 including critical illness. When they are better with their cash flow, they can increase their monthly premium by $100, and their wholelife plan is done. They could use the other cash for other wealth accumulation.

 

[Cashcow]

You guys have arguments over ilp cos in the first 3 years, the premium paid is actually paid to the agents?

But have you ever come across ilp which is 100% allocation of premiums into the funds? What do you have to say abt this kind of ilp?

 

[HandsTied]

I do agree on your views on endowment plans. The returns it generated can be easily mirrored with a good mixture of investments. However, there is a group of individuals who are not comfortable with investment. Thus they are left with no choice but to opt for endowment savings plan.

Endowments are investments too, but never mind about this.

Puting in comparison, ILP offers wholelife cover while a term expires at certain age. Opting for a term till 99 would cost about the same as a regular ILP.

This is based on the assumption that whole life cover is necessary in the first place. Life insurance is not a lifelong need. A private Shield plan can cover one for medical expenses during retirement. In any case, BTIR provides for self-insurance which is much better than any insurance contractual requirements for claiming.

The YRT in ILP escalates in cost exponentially in one's old age which makes the whole life cover expensive and not worth it making the supposedly whole life cover feature useless. At lower investment projections, the cash value will run out and the plan will lapse, leaving the insured with no cash value and no protection.

At the higher projected return of 9%, the plan seems sustainable only because the growth of the units are overcoming the assurance charges. If the insured liquidates the units, the plan cannot continue as the assurance charges are higher than his premium.

For $200,000 of coverage in death and CI from age 66 to 70, it will cost a total $27,262 in assurance charges.
Age 71 to 75, $47,618.
Age 76 to 80, $89,184.

It simply does not make financial sense to pay so much for a claim that might not happen. By 85 the insured would have paid more than the amount he is insured for. In contrast, someone who BTIR will have his "cash value" steadily growing without having to pay the massive assurance charges just to be insured, and can self-insure.

And again, having whole life cover is not something that is absolutely necessary as the sum assured is meant mainly for income replacement. There is no need for income replacement when one has retired, unless he did not manage to accumulate enough funds for retirement. The reliance on an ILP for insurance which costs more creates a self-fulfilling need for insurance coverage after retirement as the insured has less budget to build his retirement funds. For the same budget, he is well-covered under insurance, but he has little to none for retirement. He may very well just pray everyday that he gets cancer so he is able to claim, assuming the cancer meets the contractual definition.

For young adults, they could always start with $100 and get covered for about $180,000 including critical illness. When they are better with their cash flow, they can increase their monthly premium by $100, and their wholelife plan is done. They could use the other cash for other wealth accumulation.

After retirement, income replacement needs are the lowest.
When one starts work, income replacement needs are the highest.

Essentially, you are recommending under-insuring someone at a time where he has the most requirement for income replacement so that he will be over-insured (at sky-high assurance costs) at a time where he has the least need for it.

 

[HandsTied]

You guys have arguments over ilp cos in the first 3 years, the premium paid is actually paid to the agents?

But have you ever come across ilp which is 100% allocation of premiums into the funds? What do you have to say abt this kind of ilp?

You will have to share the benefit illustration. Insurance policies are just a mix-and-match of different permutations and combinations so we can't be sure what you are referring to.

If you're referring to single premium or recurring single premium ILPs meant for investments, they have this 1 to 2% assurance charge every year to protect the investment capital upon death which is really stupid. With so many unit trusts to choose from, why even bother with them?

1% of $100,000 is $1,000. $1,000 can buy you a proper term policy covering far more. Also, the payout is a higher of the cash value or the capital. If your unit value depreciates to $60,000, your real benefit is only $40,000. If your unit value is higher, you have received no benefit at all.

Do share BIs if you think there's a very good ILP. I really want to see an ILP that is worth buying/selling.

 

[Accesscode]

My 100%-premium-invested regular ILP (Aug 2010) statement reads:

Total premium invested: $29,850 over 9years 1 month.
Policy value: $45,566 (upon surrender)
Total Admin/Supplementary/Insurance Charges: $6,484
Sum assured: $100K for Death & TPD (both with health ratings)
(Today's policy value is almost $52K)


Some of the ILP features described are wrong and misleading.

There're 2 types of single premium ILPs - Cash SP and CPF SP.

For cash SP ILPs, depending on the provider, there may be a sales charge of 3-5%, and there may be insurance/benefit charges incurred monthly, but they are not calculated as a % of the premium paid. They are calculated based on the difference between policy value and sum assured. So, the higher the PV, the lower the insurance charge incurred. Should the PV become higher than the sum assured, there will be zero insurance charge incurred.

For CPF SP ILPs, the sales charge max. is 3% for new plans (as required by CPFB). And depending on who the provider is, there may not be any insurance component involved, therefore, no insurance charge incurred.
For older CPF SP ILP, the MO is the same as described for cash SP ILPs.


For regular ILPs, there are basically 2 types: Increasing-premium-allocations-over-the-years, and 100%-premium-invested regular ILPs.
There are several providers for the former plan, but only 1-3 providers for the latter.

The previous posts' descriptions of the regular ILPs are all related to the former type, and frankly, I detest them as well. It'll take many years of good rate of returns (at least 12 years) to break even the total premiums paid.

For the latter type, in return for 100%-premium-invested, there will be penalties incurred for early withdrawals or policy teminations within the first 7/8 years, but for anyone with long-term investment objectives, these 7/8 years are just a-blink-of-an-eye.

I must also state that I have another 2 WL and a few other Term insurance plans, all bought over different times, catering to increasing needs. Regular ILPs will not be the whole life cover for me.

ILP is a good product, but gravely misunderstood, and not properly managed because of the notion that it is "professionally managed". Like any other investments, ILPs must be monitored for better performances in the long-term.

Those who failed to fund switch during Sep 2008 to Mar 2009, incurred at least 60% loss (from the value at Sep 2008). This applies to any ILP, any UT, and perhaps most shares.

 

[OddEye]

My 100%-premium-invested regular ILP (Aug 2010) statement reads:

Total premium invested: $29,850 over 9years 1 month.
Policy value: $45,566 (upon surrender)
Total Admin/Supplementary/Insurance Charges: $6,484
Sum assured: $100K for Death & TPD (both with health ratings)
(Today's policy value is almost $52K)


Some of the ILP features described are wrong and misleading.

There're 2 types of single premium ILPs - Cash SP and CPF SP.

For cash SP ILPs, depending on the provider, there may be a sales charge of 3-5%, and there may be insurance/benefit charges incurred monthly, but they are not calculated as a % of the premium paid. They are calculated based on the difference between policy value and sum assured. So, the higher the PV, the lower the insurance charge incurred. Should the PV become higher than the sum assured, there will be zero insurance charge incurred.

For CPF SP ILPs, the sales charge max. is 3% for new plans (as required by CPFB). And depending on who the provider is, there may not be any insurance component involved, therefore, no insurance charge incurred.
For older CPF SP ILP, the MO is the same as described for cash SP ILPs.


For regular ILPs, there are basically 2 types: Increasing-premium-allocations-over-the-years, and 100%-premium-invested regular ILPs.
There are several providers for the former plan, but only 1-3 providers for the latter.

The previous posts' descriptions of the regular ILPs are all related to the former type, and frankly, I detest them as well. It'll take many years of good rate of returns (at least 12 years) to break even the total premiums paid.

For the latter type, in return for 100%-premium-invested, there will be penalties incurred for early withdrawals or policy teminations within the first 7/8 years, but for anyone with long-term investment objectives, these 7/8 years are just a-blink-of-an-eye.

I must also state that I have another 2 WL and a few other Term insurance plans, all bought over different times, catering to increasing needs. Regular ILPs will not be the whole life cover for me.

ILP is a good product, but gravely misunderstood, and not properly managed because of the notion that it is "professionally managed". Like any other investments, ILPs must be monitored for better performances in the long-term.

Those who failed to fund switch during Sep 2008 to Mar 2009, incurred at least 60% loss (from the value at Sep 2008). This applies to any ILP, any UT, and perhaps most shares.

Any illustrations on 100% premium invested ILP? How different is it from Increasing-premium-allocations-over-the-years?

 

[Accesscode]

IMO, BIs for ILPs are Bullsheet Illustrations, because all values are non-guaranteed, except for the insurance benefits.
They hold true ONLY if the factors indicated are exactly the same throughout the entire projected years.
Upon fund switching, the BI is completely useless and no longer valid.

At the end of the day, in investments, regardless the types, I'm more interested about making money or cash than comparing projections in useless BIs and procrastinating over what investment mediums are low costs, low this, low that.

You can get quotations from the providers for the different BIs of different ILPs, and do your own comparisons. I don't have them.

Regarding the BI to my 1st ILP dated year 2001, the projections are far behind the actual policy values I have yielded past 9+ years.

 

[HandsTied]

IMO, BIs for ILPs are Bullsheet Illustrations, because all values are non-guaranteed, except for the insurance benefits.
They hold true ONLY if the factors indicated are exactly the same throughout the entire projected years.
Upon fund switching, the BI is completely useless and no longer valid.

Like you said, there are many types of ILP. Some are mainly for insurance and some are mainly for investments. Aside from projected cash values, the BI provide information on exactly what type of ILP one is dealing with.

In any case, as an insurance plan, ILPs are not as effective as alternatives because it is not a pure insurance plan. As an investment tool, ILPs are not as effective as alternatives because it is not a pure investment tool. As an all-in-one insurance plus investment plan, it is also not effective as BTIR due to high charges and the lack of flexibility.

At the end of the day, in investments, regardless the types, I'm more interested about making money or cash than comparing projections in useless BIs and procrastinating over what investment mediums are low costs, low this, low that.

Yes, making money is paramount and that is precisely why charges are important as it has an inverse relationship to the amount of money you make.

Regarding the BI to my 1st ILP dated year 2001, the projections are far behind the actual policy values I have yielded past 9+ years.

Correct - projections are just projections, thus outperforming the projections does not mean that the plan is effective. The ILP can project 9%, and you may have gotten 11%, but someone else who minimises unnecessary costs would have gotten 12, maybe 13%.

By 100% allocation regular premium ILP, I gather that you are referring to a certain type of regular ILP that focusses on investment. As you have accurately pointed out, there are hefty surrender penalties upon early termination. This translates into a loss of liquidity for the investor. Does the performance make up for this loss of liquidity?

Anyway, the current debate here is on why regular premium ILP do not offer good value as an insurance plan.

 

[LondonBridge]

How about Term and whole Life policies?

Any advices?

 

[Cashcow]

Do mr handtied have any real life examples of a BTIR strategy which generates more profits than a well managed 100% premium ilp?

For the 100% premium ilp from my company, all charges will be waived after 11 annual premiums so you can partial withdraw, full withdraw without any penalty. Is your investment for BTIR also dun have any charges after 11 annual premiums?

Another advantage for those parents buying this for their child's education planning is that they can add payor benefit to the ilp so that in case they die or tpd, the education plan for their child won't be affected. For the investment of BTIR, can you do the same?

 

[HandsTied]

Do mr handtied have any real life examples of a BTIR strategy which generates more profits than a well managed 100% premium ilp?

For the 100% premium ilp from my company, all charges will be waived after 11 annual premiums so you can partial withdraw, full withdraw without any penalty. Is your investment for BTIR also dun have any charges after 11 annual premiums?

Another advantage for those parents buying this for their child's education planning is that they can add payor benefit to the ilp so that in case they die or tpd, the education plan for their child won't be affected. For the investment of BTIR, can you do the same?

Do share the BI so I know what kind of policy exactly you are referring to.

This "advantage" - Does it have a cost? Yes. Can I take this cost to similarly insure the parents against death/TPD? Yes. What's your point?

I'm still very amused by how ILP proponents are able to justifying taking a $2 burger and $2 drink and selling it for $6, or even $8, and say things like, "The meal is delicious", and "Food is important for your survival!". Yes yes, one can derive much pleasure from eating a burger and drinking a refreshing drink. However, he/she can just buy a $2 burger and $2 drink. Your happy meal toy which costs 20 cents and has little or no value to the person does not warrant a $4 premium.

I've already said before - Do share the Benefit Illustration because I will buy the policy if it's so amazing!

 

[Accesscode]

Do mr handtied have any real life examples of a BTIR strategy which generates more profits than a well managed 100% premium ilp?

For the 100% premium ilp from my company, all charges will be waived after 11 annual premiums so you can partial withdraw, full withdraw without any penalty. Is your investment for BTIR also dun have any charges after 11 annual premiums?

Another advantage for those parents buying this for their child's education planning is that they can add payor benefit to the ilp so that in case they die or tpd, the education plan for their child won't be affected. For the investment of BTIR, can you do the same?

Can you share what are the exact charges your company will deduct during the first 11 years, and which of them will be waived after 11 years?

I believe the insurance charge will still be deducted as long as the policy is still active/in-force.
For some ILPs, the monthly policy fee is also ever-present, as long as the policy is active/in-force.

If there is at least one charge being deducted, surely it doesn't mean (as what you wrote) "... all charges will be waived after 11 annual premiums..."

 

[Accesscode]

Another advantage for those parents buying this for their child's education planning is that they can add payor benefit to the ilp so that in case they die or tpd, the education plan for their child won't be affected. For the investment of BTIR, can you do the same?

Don't be too quick to conclude this as "another advantage".

I know of a simple insurance strategy to overcome this "payor benefit" advantage.
And the cost is 50% of the payor benefit premium.

 

[dralf]

somemore ilp is invested in funds.
the fund management fee is already calculated in the bid/offer price.
it will forever have a recurring fee.

seriously ilp is a very bad product.
Agree with Accesscode that the BI is really Bullsheet Illustrations.
at least with whole life ins, the BI will more or less be accurate.