Friday, January 2, 2009

One of those traps in Investment Link Insurance

You probably know investment link insurance has many elements in it.  One of the elements in it is ofcourse insurance coverage.  While you can buy the 'cheapest' insurance coverage through investment link, do you know that your 'investment' element is badly affected in order to pay for the 'cheapest' coverage ?  

Investment Link is a type of products you should consider if you do not know much about investment.  And if you do not know much about investment, you should at least know Dollar Cost Averaging.  Lets review Dollar Cost Averaging and Buy Low Sell High concept !  Basically you accumulate more units during down trend and less units during up trend.
In investment link policy, your annual premium is NOT directly credited into your account.  It will first be used to deduct your protection charges monthly.  The protection charges may remain the same but the way it is calculated is NOT a dollar to dollar deduction.  It will use the market price of your investment to deduct the number of units in order to match the premium payment.
 For example;

Premium Payment NeededMarket PriceNumber of Units Needed
$100
$1
100
$100
$2
50
$100
$0.50
200

So instead of deducting $100 consistently from your account, it is deducting the number of units.

You can see that during a down trend ie. when market price is $0.50 you lost 200 units.  And during an up trend ie. when market price is $5 you lost only 50 units.

So instead of accumulating MORE units during down trend,
 you LOST more units.

In long run, you are strategically put into a 'losing' position while the insurance company has a HIGHER chance to earn MORE of your money.  Because you are getting into a position that is OPPOSITE of Dollar Cost Averaging !

Below shows a Sample of an actual detail list of an invesment link policy, click on image to view in bigger  size.


6 comments:

Anonymous said...

Your blog is getting more complicated with more features. It is somehow effecting/distracting to the reader who try to read your very important, serious & non-funful contents... Nonetheless it is still a very interesting site and I wont stop visiting. My personal preference is that I hope to see no more new/colorful features as I'm distracted easily :P

Anonymous said...

A suggestion: Instead of having 2 side bars and 1 content, you might want to consider to have 1 side bar and 1 content. A bottom bar could be considered if it is necessary. This way, we get to focus on the content (left or right) only if we want. Take a look at this page, the main dish (your content) is short and fonts are tiny as compare to your side orders. Therefore it is distracting when you often try to send out cautious and important messages to us, your faithful readers.

Anonymous said...

All of the other choices of fonts, color, graphic you used in all of your every posts are excellent and perfect and we have been enjoy reading your blog very much! You are a true great blogger in town.

By the way, thank you for your kind sharing. It has been very helpful.

Keep up the great works!

Michael Tsen said...

thanks ... will consider all these as I go along .... I think the upcoming URL changes will affect readership too ...

TheCurious said...

Are all investment link policies of all insurers work the same manner ? Any "good" insurer deduct the protection amount from the premium paid and then use the rest ot the premium to buy units?

Michael Tsen said...

Thanks for your great comment again TheCurious, there is a 2nd part of this post where it shows 'what we should do about it'.

most investment link plans in malaysia currently is calculated like this. I would believe its the same globally too.

your suggestion may seems apparently but actually may not be better than current ways in 'some' scenarios ie. a down trend market.