I REFER to Mr Tan Kin Lian's letter on Tuesday, 'Hidden charges in insurance policies'.

Mr Tan seems to highlight only the disadvantages of an investment-linked policy (ILP) without mentioning how policyholders may benefit from it.

Related link: » Hidden insurance charges? I don't think so...

There is a yearly renewable term assurance coverage incorporated into an ILP that allows a policyholder to get the necessary coverage at a premium that is normally lower than a level term plan. This allows 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 nears retirement age, which is when mortality charges increase significantly, he is 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.

Mr Tan also seems to emphasise that the unallocated investments during the initial years are used to pay a high commission to the agent.

Not all insurance companies pay a high commission. There are companies that charge the policyholder reasonably and pay the agent reasonably. An agent should be compensated for the advice, time and the years of service that he has to provide to the policyholder.

Mr Tan's letter might create an impression that all insurance agents aim to hide charges from their customers. There are certainly black sheep in the industry, but they should not be grouped together with advisers who are transparent with their clients.

The letter might also create the impression that agents get 100 per cent of the unallocated investments. We must not forget that there are many other departments in an insurance company that are direct or indirect beneficiaries of these funds.

I agree with Mr Tan that the current charges for ILP are generally high. I encourage buyers to make comparisons before deciding to buy such plans.

The Monetary Authority of Singapore could consider setting a cap on how much an insurance company can charge for such policies. I also look forward to innovations from insurers on how they design plans for the benefit of the policyholder, company as well as the adviser.

Adrian Khiat

This article was first published in The Straits Times.