An airline steward, who is in his early 30s, told me that he invested his regular savings in an investment-linked policy for the past seven years. The "investment" is still showing a loss of about 20%, i.e. the value of his investments is lower than the premiums that he has paid.
I told him that his loss is probably due to the following factors:
a) The high distribution cost, i.e. up to two years of his savings is taken away to pay commission and other marketing expenses
b) The spread, i.e. up to 5 percent of the invested sum is taken away up front
c) The expense ratio, which would probably be close to two percent of the accumulated savings each year
He did not realize that the ILP policy has been designed to look after the interest of the agent, agency manager and insurance company, before looking after the interest of the policyholder! Many consumers did not realize this, and when they do, it is too late.
This is why the life insurance companies are making hefty profit now, while their customers have to wait for ages to see a small appreciation in their investment - which hardly keeps up with inflation.
.
I told him that his loss is probably due to the following factors:
a) The high distribution cost, i.e. up to two years of his savings is taken away to pay commission and other marketing expenses
b) The spread, i.e. up to 5 percent of the invested sum is taken away up front
c) The expense ratio, which would probably be close to two percent of the accumulated savings each year
He did not realize that the ILP policy has been designed to look after the interest of the agent, agency manager and insurance company, before looking after the interest of the policyholder! Many consumers did not realize this, and when they do, it is too late.
This is why the life insurance companies are making hefty profit now, while their customers have to wait for ages to see a small appreciation in their investment - which hardly keeps up with inflation.
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