Benefit Illustration - distribution cost and effect of deduction

A consumer ask my advice on a new product that is being sold to her. It is a life insurance policy with the benefit paid in installments over a period of years (similar to a life annuity). She sent a 15 page benefit illustration on this product to me. She was confused with the explanation by the financial consultant.

I find it difficult to understand the product based on the benefit illustration. There are a lot of information, including items that are not related to the product itself. The additional information gives opportunity to the financial consultant to mislead the consumer when she explains the product.

The distribution cost was $14,000 and there is a statement "please note that the distribution cost is not an additional cost to you, it has already been allowed for in calculating the premium". I find this statement to be misleading - it is a cost paid by the consumer and is a lot of money for financial advice that is confusing and detrimental for the consumer.

 I found the "effect of deduction" after 30 years to be horrendous. Based on projected investment yield of 5.25%, the accumulated premium amounts to $840,000, effect of deduction is shown as $611,000 (73%) and the amount payable to the consumer is $231,000 (23%).

What kind of financial product takes away 73% of the accumulated savings from you and leave you with only 27%? I do not know if these figures have been calculated correctly, but they appear in the benefit illustration.

I have advised that the "effect of deduction" should not exceed 20% for most types of long term products. I complained when the ratio is 40%. Now I have seen a ratio of 73% for this product. It is tantamount to daylight robbery and cheating of unwary consumers.

Perhaps the Monetary Authority of Singapore should contact me so I can ask the consumer to send the  benefit illustration for their study. This type of product should not be allowed to be sold to consumers, as they are clearly unfair. Perhaps the benefit illustration should be changed, so that it contains information that is clearly understood by the consumer, without giving opportunity for the financial consultant to mislead the consumer through verbal explanation.

Tan Kin Lian