It's been a year since I've worked in the insurance industry. Like every other agent, I have no financial background prior to joining the industry. And after all these while;
1)I still call myself an Insurance Agent, refusing to introduce myself as a financial advisor. Financial Advisor my foot. We only sell insurance and offer biased information. And most of these so-called advisors do not have a background in finance or are even keen to upgrade their financial knowledge. So what kinda advisor is that? As I encounter roadshows, I cringe to associate myself with one of those agents eyeing to obtain a peice of people's wallets. (Think one of those hard-sell agents from P company) But there are good agents around. You just don't normally find them at roadshows.
2)I only just started selling ILPs because I have always been uncomfortable with how the company trains us to sell it.
My sales manager would occassionally drum the acronym PIER into our heads.
P stands for Protection
I stands for Investment
E stands for Education
R stands for Retirement
The acronym refers to the characteristics of an Investment-Linked Policy. I always had trouble accepting the fact that a regular-premium ILP with high protection indeed consists of a sound savings solution.
So I did a calculation. The results surprised me.
Scenario: Alan wants to buy a $100,000 death cover. He has a yearly budget of $1200 and wants to maximise its use as much as possible. He is now 30 years old and would like to surrender his policy by age 60 to supplement his retirement since he does not need the coverage any more then.
IF ALAN BUYS AN ILP
Cost: $1200/year
Sum Assured: $100,000
Mortality charge: $78/annum
Fund performance: 9%
Amount he gets back at year 30 when he surrenders after deduction of mortality charges/policy fees/management charge of 1.5%/admin charge: $84,800
Total premium Outlay: $36,000
Actual % Return after deduction: 4.75% per annum (Compound)
Okay now let's look at BUY TERM INVEST THE REST.
I used Fundsupermart in my case study (because of its all time low 2% sales charge):
Cost of Term Insurance: $209/year
Sum Assured: $100,000
Amount left for investment: $1200-$209=$991
Assuming fundsupermart allows for annual investment below $1000.
2% sales charge+1.5% management charge
Fund Performance: 9%
Actual % Return after deduction: 5.5% per annum (compound)
Although there is an increase % yield per annum when you buy term and invest the rest, because of the lower investment amount of $991/annum, you will only reap $80,670.75 which is less that ILP's $84,800!
Shucks.I should have more faith in my product. Did I calculate correctly? Somebody correct me if I'm wrong.
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