According to section 7.5 of the new guidance notes issued by the Office of the Commissioner of Insurance:
̶ clients wanting both insurance protection and “saving up for the future” should be presented with the option of procuring an endowment policy; and
̶ clients wanting both insurance protection and benefitting from growth in the investment market should be presented with the options of procuring a participation policy or an ILAS policy, and the advantages and risks of both products should be explained in detail. Only in cases where the clients wish to make the investment decision and are willing to bear the investment risk should ILAS be recommended.
This is a load of crap. One of my contacts explains why:
“As any informed person knows, there are other alternatives to ILAS for people prepared to accept investment risk. In order to provide concrete consumer protection, the IA should force insurance intermediaries to tell prospective clients about alternatives to ILAS plans as part of the sales process. The client should sign a suitable disclaimer saying that they have been informed that alternative investment options exist.
Unless the ILAS product is cost effective compared with buying funds directly or there is a compelling tax argument, they would not be suitable. This will force the insurance industry to either come up with cost efficient products or concentrate on insurance, not investment dressed up as insurance.”
I’ll only add two points:
1) Consumers should also sign a statement saying they have been informed of the benefits of buying term life insurance and using alternative savings options, apart from endowment or whole life policies. This could include index funds, government bonds, fixed deposits, or an ordinary savings account.
2) Salespeople and product providers must be required to fully disclose all commissions in writing. This disclosure should include a statement saying that alternative investment products may pay lower or no commissions, which can create a conflict of interests and compromise the objectivity of a commission-based adviser.