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Bianca Reyes

DESPITE WIDESPREAD advice to think carefully before committing to investment-linked insurance plans, Hong Kong consumers  are continuing to snap up this type of product.

Between 2001 and the end of last year, sales of regular premium investment-linked insurance grew by 34.8 per cent, while single premium investment-linked insurance sales rose by 160 per cent.

Single premium means policy holders pay a one-off premium, while regular premium means they pay monthly or annually.

In the past, complaints related to investment-linked insurance lodged with the Consumer Council have been high, mainly involving the transparency of the insurance policy. But since last year, there have been fewer complaints, thanks to educational programmes undertaken by the Consumer Council.

Still, there is a need to caution consumers about the level of commitment required  for investment-linked insurance, which is sometimes understated by insurance agents, said Connie Lau, deputy chief executive at the Consumer Council.

'Some intermediaries [insurance agents] are giving misleading information such as telling their potential clients that they can get back their money any time. Yes, they can get it back - but whether they'll get back the entire investment is another thing,' Ms Lau said.

She declined to name which insurance companies or agents were the subject of these complaints. However, with only eight cases reported to the council in the past six months, malpractice in the local industry appears to be the exception rather than the rule.

To avoid losing money in such a venture, consumers should be aware of the risks and charges involved.

Juliana Lam, head of sales for personal financial services at HSBC, said investment-linked insurance required a medium to long-term commitment as it could cost consumers a lot to quit  the policy early.

It is also important that consumers try to locate the investment funds that match their own personal risk profile.

'That's why financial planning is good to find out whether you'd need money in the short or long term,' she said.

It is advisable  to seek the help of a financial planner and there was a need to recognise that investments always involve risk, she added.

Because this is an insurance product, consumers are given a 14-day 'cooling period', where they can return the policy without any insurance or handling charges.

'But be careful because the moment you purchase the policy, the money is invested. While you won't be charged insurance or handling fees, the amount that will be returned to you will be calculated according to the market value. So it could be less than what you originally put in,'  Ms Lam said.

Consumers should also know the dealing date of their insurance company, whether it is on a daily or  weekly basis.

'Don't treat the policy like a bank account, where you can just get your money whenever you want it,' she said.

There are several charges involved in such a product, including an insurance charge for life protection, an initial charge for starting the policy, a fee for the administration work required to maintain the policy, an asset management fee, a  fee when you switch from one fund to another, a  fee for withdrawing a certain amount from your investment and a  fee for quitting the policy.

Fees  vary from company to company, but consumers should watch out for the surrender fee, which could be  heavy, Ms Lam said. The surrender fee is commonly based on the market value of the fund minus the total administration charge for the rest of the policy duration.

If the policy is for 30 years, and the holder quits  in the second year, he or she will be charged the administration fee for the remaining 28 years. The money lost could be  more than 50 per cent of the total investment.

Ms Lam  recommended that before committing to a plan, consumers should deal with a trustworthy organisation, know the mechanics of the policy and if they are not comfortable, ask for a sample policy.



It pays to read the fine print before you commit yourself