Where did my HK$180,000 go?
Ms Wong, 41, bought a 15-year regular premium ILAS three years ago, paying HK$60,000 a year. The premium allocation schedule is 60% in years 1–3, 80% in years 4–6 and 100% from year 7; unallocated premium is retained by the insurer as an initial charge. The policy also carries a monthly policy fee of HK$60, a mortality and morbidity charge computed on the sum at risk (the death benefit is 101% of account value), and fund management fees of 1.5% a year charged inside the fund's net asset value. She has now paid HK$180,000. The account value is HK$118,400 and the surrender value is HK$113,000. Her complaint form reads: "My agent told me this was a savings plan - after three years I should at least get back what I put in. Where has my money gone?"
1. Reconcile the numbers. Explain, as far as the data allows, the gap between the HK$180,000 paid and the HK$118,400 account value, and identify what cannot be determined from the information given.
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Start with what was actually invested. On a 60% allocation in years 1–3, only HK$108,000 of the HK$180,000 was used to buy units; HK$72,000 was absorbed as the initial (unallocated premium) charge. Policy fees of HK$60 a month add HK$2,160. That leaves roughly HK$105,840 of net premium working for her. The account value of HK$118,400 is about 11.9% above that net amount - so the funds have in fact performed positively. The "loss" is front-end load, not investment performance.
The surrender value of HK$113,000 is HK$5,400 below account value, reflecting a surrender charge in the early years. That charge is the price of exiting before the allocation rate rises to 100%.
What cannot be determined: the exact valuation date and price at which each premium was invested, the mortality and morbidity rate and its precise basis, whether any top-ups or withdrawals occurred, and the funds' return path. The reconciliation is therefore an estimate, not an audit.
The judgement point for the complaint is that this is a designed, disclosed feature of a front-loaded regular premium product: early years carry the distribution cost, later years are fully allocated. Whether she breaks even, and when, depends on the allocation schedule and returns - it was never a three-year savings account.
2. Explain the mortality and morbidity charge and the fund management fee, and assess whether the death benefit of "101% of account value" gives value for money.
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Sum at risk is the death benefit minus the account value: 101% of account value less account value = 1% of account value, about HK$1,184 at present. Whatever the rate per mille, the charge on such a small sum at risk is trivial, and it remains trivial as a proportion of account value because the death benefit is only 1% above it. The protection element is close to token.
By contrast, the 1.5% a year fund management fee applies to the entire account value and compounds over 15 years; it can absorb a meaningful share of gross return. That fee, the front-end load and the early surrender charge are where the real cost sits, not the mortality charge.
Value-for-money judgement: the 1% uplift is cheap in cash terms but is not meaningful insurance. If Ms Wong needs death cover - for dependants, a mortgage, or estate costs - it should be arranged separately and priced against term cover, because a 1% uplift over account value will not meet a protection need. Conversely, if she has no dependants, the point of the life cover element should be explained honestly rather than marketed as a benefit.
The important technical point is that fund management fees reduce unit price rather than unit count, so they never appear as a line item on her statement. That invisibility, not the mortality charge, is what most often drives the "where has my money gone" complaint.
3. Which documents should have set her expectations, and how should the insurer handle the complaint if the illustration was accurate? What if it was not?
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Documents that should have set expectations: the product brochure; the Important Facts Statement, covering the nature of the product, charges, risks, absence of guarantee and surrender basis; the illustration showing the premium allocation table by policy year, the surrender value table, and guaranteed versus non-guaranteed columns on the insurer's prescribed assumptions; the financial needs analysis; and the annual statements showing actual charges and unit balances.
If the illustration was accurate, her expectation of recovering premiums after three years was never supported by the documents. The complaint then turns on what she was told. The insurer should review the adviser's file notes, any recording, her education and age, and whether the 15-year term and affordability were discussed. If the file is clean, respond in writing with a clear reconciliation like the one above - allocation rate, charges, fund performance, surrender charge - and set out practical options: continue, reduce the premium, or surrender with the charge quantified in advance. A clear explanation resolves many of these complaints without any payment.
If the illustration was inaccurate, or the file is missing or inconsistent, the insurer faces a conduct issue. It should consider goodwill remediation such as waiving the surrender charge, and should review whether the adviser's other files show the same pattern. Paying to correct a documented failure is usually cheaper than a regulatory finding plus reputational damage.