I want to share a secret related to investment-linked insurance or takaful-linked. This information is written in the product brochure but rarely explained to the customer because it was always back-fire to the agent. Customers feel cheated and may cancel the transaction. I mean the thing is that sales charges or the takaful term called Wakalah charges. In layman terms, we understand that it charges imposed by insurance or takaful operator when a product is exercised. These charges will be shared by operators and is used especially to pay commission to insurance / takaful agents.
Let’s see wakalah charges imposed by PruBSN Takafulink popular among operators. This information can be obtained via its website.
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We focus our discussion on the part with the yellow paint. That is the charge imposed by the policy, and will decrease as the policy gets longer. However, the charges are too high for first year. The most unfair part to customers is this,
Takafulink is based on the Wakalah Model serta Takaful Operator deducts a charge from the contributions BEFORE allocation / crediting into the PUA, ISA and IUA.
For example, if a participant’s contributes RM300 a month, then RM180 is deducted in the past for wakalah charges. After that there is also a protection charge, which is usually around 20% – 30%. Balance remaining after deduction of these two things that will be the actual amount saved. That is the main reason why the value of future customers get through this kind of product is not worth it when compared to the amount paid out.
While there 2 or 3 good things about packaged protection Takafulink product, but I stress to everyone that insurance or takaful products must only be used for the purposes of the protection. If you want to make Savings or investments , you need to use other financial instrument.
In this post I present a linked investment insurance as an example. But there are some takaful operators are promoting a product concept that charges Endowment Wakalah up to 90% for the first year.
Filed under: Financial Planning, Insurance, Islamic Economy Image may be NSFW.
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