Victim of “Financial Consultants”

I came across someone asking for help with regards to his insurance portfolio.

I have helped many clients to sort out their portfolios after they have bought all kinds of financial products that were not only lousy, but did not suit them at all. I felt compelled to offer some help to this individual as he was really paying a lot from his monthly income and was still poorly insured.

Here is his insurance portfolio:

The most astounding thing is that he is still a student with a monthly income of around $500. He was already paying almost 40% of his income on various policies until last year where he was sold an investment-linked policy (ILP) of $150 a month, making a whopping two-third of his income spent on insurance. The worst part is that he is far from being adequately insured. This problem may well follow him after graduation as most young people have a high need for liquidity. After committing a significant amount to insurance, he may not be able to properly insure himself within a reasonable budget.

I think the industry really needs reform when young students who have not even joined the workforce are shortchanged by “financial consultants”. Actually, this is nothing new. Many insurance agencies, especially those with pretty female agents, are specifically targetting National Servicemen to sell financial products. Some go after the money of fresh graduates, locking them into unnecessary and long-term financial obligations from a young age.

It is good to start young, but the reality is that most people buy all kinds of rubbish. Some, after being duped into a bad purchase, become averse to all things financial.

Post is written with the permission of the person.

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14 responses.

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  • Reply
    Value investor said 1013 days ago:

    Its ok. Because he will have a job few years later and his income will explode on the upside. This is the way to console him.

    • Reply
      Seth said 1013 days ago:

      That’s true, but $300+ per month is actually quite high to pay for insurance even for some working adults. I am also quite sure that he will be sold even more ILPs and endowment policies when he starts working.

      Thanks for your comment!

  • Reply
    Garrett said 1012 days ago:

    OMG that looks terrible:
    -$834/yr for only $50k coverage (and no CI)!
    -$852/yr for some endowment plan with only $20k coverage (and no CI too)!
    -$154/yr for some junk medical reimbursement policy when he could get a Private Hospital Shield Plan for the same price with 10X the annual limit…
    -$347/yr of $50k Term CI (this is probably the only half-decent policy).
    -$1800/yr for ILP with CI coverage of $100k

    This guy is spending $4k/yr on insurance premiums! And he’s a student? Where he find so much money?

    • Reply
      Seth said 1012 days ago:

      I have seen many ridiculous portfolios but as you have noticed, this case is quite notable because of the profile of the person.

  • Reply
    futures-explained said 1012 days ago:

    I know of working professionals who are paying 50% of their monthly salary in insurance and ILP. Think insurance is easier to sell in singapore. We are practically ks. Everything must be protected and 100%.

    • Reply
      Seth said 1012 days ago:

      Relatively high incomes + poor financial literacy = MDRT insurance agents!

  • Reply
    Annon said 588 days ago:

    To me, NTUC policy that is not limited pay seems pricey.

    However,

    What is wrong with taking up an endowment plan? The young man doesn’t want to lose out on higher returns. He doesn’t know how else to grow it.

    What is wrong with taking up a medical reimbursement plan? This plugs a gap that shield plans will not cover.

    I’ve never been a fan of ILP, but if client wants an ILP, what is really wrong? 1800 is likely a minimum amount due to inclusion of CI.

  • Reply
    Annon said 588 days ago:

    I just saw your post on ‘dollar x syndrome’.
    Does this young man not practice your solution to such a syndrome with his purchases? Clearly, the young man must have extra income to have not lapsed any of the plans (perhaps allowance?). Further, I am 99% sure you know that he is not paying for the NTUC plan at the very least. Why mislead us this way.

    • Reply
      Seth said 588 days ago:

      There are multiple problems with this case: He has a low monthly income but his premium obligation is very high, yet he is not adequately insured.

      Talk about taking things out of context – Dollar X doesn’t apply to everyone, and even if he does suffer from such a syndrome there is little consequence nor need to fix it because of his low earning ability now, particularly not with disproportionately high amount put into insurance policies.

      Are you psychic?

      Justifying such a case makes me feel sad for your clients.

  • Reply
    Annon said 587 days ago:

    Well, just trying to understand what is so ‘wrong’ with what he has gotten. Not saying I agree or disagree, but really, please do explain a little more if you can.

    For example, maybe you could share what are / were his goals when he took up those policies. It’s not often that young people start out by saying they want to prioritize high life coverage. After all, they seldom have financial liabilities.

    Ntuc plan was taken up when he was a baby, naturally by his parents. So that in itself prob shouldn’t be factored into his monthly premiums.

    Savings plan, I don’t see what’s wrong with it. Pls do share.

    ILP, term or trad WL, there is always the debate. You can say buy term go invest. Later invest fail or never invest, then how?

    Finally, please be clear. Are you saying he is living off 500 a month? Or is 500 he earns something extra from himself.

    Anyway, I am not justifying his case. If you think that, then you missed my point and I’m sorry I wasn’t clearer. I’m just saying that when you make online posts, please be responsible and give the full picture. The way you write and frame your articles, comes across like an extreme salesman.

    • Reply
      Seth said 586 days ago:

      What is wrong is self-explanatory – four people have since replied to this article including you, and you seem to be the only one who doesn’t find anything wrong with this kind of portfolio.

      I don’t have to share his goals because I know for a fact that there are always alternate and better ways of reaching them. If I have to explain to you that spending half of one’s income on insurance is wrong, I really do pity your clients.

      Insured takes over policies at age 21. It is not uncommon for parents to likewise transfer the payment of policies to their children when they are of age.

      I am not surprised you do not see what’s wrong with savings plans. I recently elaborated on this in my recent talk. I prefer not to share some information on my blog.

      And I am also not surprised you are pointing out the weaknesses of buying term and investing the rest. Are you trying to imply that ILP investments cannot fail? Your asinine question of “never invest how?” can be thrown back at you – “ILP/trad WL never pay premiums and perpetually go on premium holiday/premium loan how?”

      How is the term “monthly income” unclear? Do you require a dictionary? You are just trying to fuddle the matter by saying that I am being unclear.

      I don’t see you as justifying his case as much as you are just casting aspersions and trolling because I am against your manner of livelihood. It is obvious if anyone reads my blog that I am against the current distribution models which are sales-based, and I am against the remuneration model of commissions which rewards salesmanship over planning; if you want to paint me as a salesman, try harder. You, on the other hand, as a tied agent are merely a sales representative of your insurance company.

  • Reply
    Annon said 586 days ago:

    Again, the pertinent question of what is his true income (500 + allowance? + anything else?) should be answered. Because, how your post comes across is as though you are saying that all this young man has is $500 a month to live off and he spends $300 on insurance so any one who sold him what he bought is a terrible person. To clarify, I know you used the word income. However, i’m focusing on responsible postings; and honestly, if he has additional money to supplement his $500, than your post indeed is misleading.

    Regarding my question of ‘never invest how?’, you clearly didn’t get my point. It’s a view of if I can save $50-80 a month from getting a term over an ILP, how do I even invest such a small amount? If I can’t invest such small amounts, will I spend it? If I save up into a small lump sum, would I suffer from your ‘dollar x syndrome’? Further, how do I be covered for CI till 100 years old without getting an ILP / trad WL plan?

    Lastly, if you truly feel that savings plans are ‘wrong’, then if your blog is meant to be educational, you should all the more share that. Because, if you can easily think of a group of people who will be happiest (after comparing alternatives) and benefit well from a savings plan, then it cannot be ‘wrong’.

    • Reply
      Seth said 583 days ago:

      Again, the pertinent question of what is his true income (500 + allowance? + anything else?) should be answered. Because, how your post comes across is as though you are saying that all this young man has is $500 a month to live off and he spends $300 on insurance so any one who sold him what he bought is a terrible person.

      I base my opinion on two things:

      1) I did the fact-finding and I know this portfolio is not suitable. Due to client confidentiality I am not going to reveal anything more than the portfolio itself and the income. The income is the total intake; stop trying to fuddle the issue.

      2) There are easily more suitable alternatives available.

      3) The income and portfolio are sufficient for some readers to come to an understanding whether this is a proper portfolio.

      If you are still going to say that a young person who is entering the work force in a few years and drawing only $500 income currently should spend half of that to buy insurance that covers for no more than $150,000 of critical illness, high upfront costs, no H&S coverage etc, I think it is also sufficient for readers to come to an understanding what kind of agent you are.

      Again, I pity your clients.

      Regarding my question of ‘never invest how?’, you clearly didn’t get my point. It’s a view of if I can save $50-80 a month from getting a term over an ILP, how do I even invest such a small amount? If I can’t invest such small amounts, will I spend it? If I save up into a small lump sum, would I suffer from your ‘dollar x syndrome’? Further, how do I be covered for CI till 100 years old without getting an ILP / trad WL plan?

      Please state the assumed budget before we continue with this hypothetical situation that you are trying to create.

      Lastly, if you truly feel that savings plans are ‘wrong’, then if your blog is meant to be educational, you should all the more share that. Because, if you can easily think of a group of people who will be happiest (after comparing alternatives) and benefit well from a savings plan, then it cannot be ‘wrong’.

      I have wrote on participating plans and endowments before.

      This article also has nothing to do with whether or not a savings plan is right or wrong, but has everything to do with whether this insurance portfolio is suitable for my client at hand.

      Just because a group of people can be happiest after supposedly comparing alternatives with an endowment plan as you have asserted does not mean that this person’s insurance portfolio is suitable for him. I can go on about how with proper comparison, this group of people will not be happy with an endowment policy but you are just presenting a strawman arguments that has nothing to do with the fact that this person’s insurance portfolio is not suitable for him.

  • Reply
    Blade Knight said 320 days ago:

    Hi Seth,
    I just came across your blog. Very impressive postings. Also glad to at last see a financial planner with the proper integrity and genuine in helping clients. Please keep up the good work.

    Pretty sad to see Financial Planner like Annon around in the profession. Worse thing is such incompetent consultant thinks that they are awesome in financial planning and never realize they are doing more harm than good to their clients. Very ridiculous posting by this Annon.

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