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Oct 05 2011

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Dissecting Zurich International Life





Zurich International Life is an investment/insurance company with a large number of South East Asian based expatriate customers. 

zurich warningZurich International‘s successful sales team often markets products (like variable annuities) which couple people’s investment accounts with an insurance component.  In financially academic circles, it’s generally accepted that such products are expensive and inefficient, but their high commissions make them popular among salespeople who market them successfully to clients.

Let’s dissect one of their more common account types:  their International Wealth Account.

First of all, we should look at the “insurance” they offer their clients. It could be considered a luring sales carrot… if it’s misinterpreted.  Here it is, pasted directly from their website:

Life cover benefit

Your life insurance plan will be written on the basis of one or more lives insured (up to a maximum of five) on a last-death basis. The amount payable on death of the last life insured will be 101% of the plan’s cash-in value.

Yes, there is an “insured” guarantee of 101% of the plan’s “cash-in value” but what does that mean exactly?

Let’s assume that you had invested $300,000 over a period of 20 years.  The life insurance component ensures that when you die, your beneficiary will receive a guarantee of 1% more than what you invested in the insurance plan.  Beware of the language that’s used in the brochure.  If you loaned me $5, and I gave you that $5 back, I would have repaid you 100% of what I borrowed.

I called the company at the local Singapore number.  Here’s the dialogue I had with the third company representative I spoke to (the first two I spoke to could read the Life cover benefit from a pamphlet, but couldn’t explain it)




Andrew:  How much is the investor insured for?
Zurich:  They’re insured for 101% of the cash-in value of their account.
Andrew:  So if I die, for example, my wife would receive the value of my account, plus an additional 101% of the account’s value?
Zurich:  No, your wife would either receive the account value or 1% more than what you actually invested.
Andrew:  Oh…..thank you.

Does that sound good to you???

 Tax Benefits?

The insurance policy, as I mentioned in my introduction, isn’t much of a policy at all.  But salespeople do like to point out the benefits of having an investment firm with assets invested on the Isle of Man—a well-known Channel Isle tax haven.

Here’s the explanation, pasted from their website:

Tax

Zurich International Life is an insurance company registered in the Isle of Man that does not pay capital gains tax or income tax on investments held on behalf of its investors. There may, however, be a small element of withholding tax applied to investments in certain countries. In reality these will be minimal.

The attraction of no capital gains taxes on investments based on the Isle of Man becomes a mute point if you’re living in Singapore (as a non American).  If you’re investing in Singapore, you won’t have to pay any capital gains taxes on your investments—whether you invest in the European, Canadian, U.S. or Asian markets.  Singapore doesn’t charge capital gains on stock and bond market investments.

Fees

When opening a Zurich International Wealth account, you must initially deposit at least $100,000SGD, $100,000 AUD, 60,000 Euros, 500,000 HKD or $60,000 USD.

Then there’s an initial fee to open the account, but you can choose one of two payment options.

Option 1:

Zurich would charge 7% of your account’s value (or a minimum of $7000 SGD on a $100,000 SGD account)

Option 2:

Zurich would charge you smaller sums annually for the first five years: 2% the first year, another 2% the second year, and then 1% for each of the remaining 3 years.  At first glance, this might seem like a better deal.  After all, 2+2+1+1+1 also equals 7.  And instead of paying 7% up front, you could defer the payment over 5 years.  That’s what they want you to think.  And that’s the option the company probably prefers that you take.

If the account actually made money (or if you added money to it) you would be better off paying the 7% fee up front.  The second option may look better, but it’s generally there to entice people who don’t do the math.

For example, assume that a $100,000 account averaged 5% per year for 5 years.

Here’s what your account fees would amount to if you added nothing to your account.

  • Year 1:  $2,100
  • Year 2:  $2,181
  • Year 3:  $1,113
  • Year 4:  $1,122
  • Year 5:  $1,166

Without adding a penny to the account, the investor taking option 2 (paying establishment fees annually for five years) would pay $7,682 to Zurich.

If they added monthly contributions to their investments—as most people do– they would pay significantly more, of course, because their fees would be determined based on a percentage of their account size.  If someone added an additional $200,000 to their account over 5 years, they would pay exponentially for that.

Five year establishment fee charges could exceed $20,000….or more.

Yearly management charge

Unfortunately, the fees don’t stop there.  According to the website, there’s also a yearly management charge of 0.5% for accounts below $374,999 SGD.  This fee percentage lowers as the account rises in value, but the actual dollar amount reaped by Zurich (at their customers’ expense) actually increases.

Here’s an example.  Assume that you have an account of $300,000.  Your annual management fee will be 0.5% each year, or $1,500 per year.

If your account’s value was $2 million, you would pay 0.2% in yearly management fees, amounting to $4000 per year.  Paying 0.2% annually–rather than 0.5% annually– sounds like you’re getting a better deal as your account value grows. But Zurich will still reap more money in fees from a $2 million account than they will from a $300,000 account.  And here’s the kicker: it isn’t any tougher to manage a $2 million account.

Yearly Plan Charge

Take a deep breath now my friends; there’s also a yearly plan charge, which I pasted below, right off the website:

Currency Yearly plan charge

  • SGD 250
  • AUD 250
  • JPY 20,000
  • HKD 1,200
  • GBP 100
  • EUR 150
  • CHF 250
  • USD 150

Investment Advisor Fee

And just when you thought the fees would stop, I have to tell you that we’re just getting warmed up.  According to the website, if you appoint an investment advisor, you will have to pay an additional 1% of what you invest (going straight to the advisor) or a fixed percentage of your assets, up to 1% per year.

Let’s see how this could pan out.

If you took the first option, and invested $50,000 per year, you would pay $500 annually to your advisor.

If you took the second option, and an advisor took 1% of your account’s value every year, your investments would only make a fraction of what you deserve.  Have a look at how much less you would make if you were paying a 1% annual fee.

$500,000 making 7% per year for 30 years = $3,806,127

$500,000 making 6% per year (after the 1% advisor’s fee) for 30 years = $2,871,745

It’s nearly a one million dollar difference.

Cash In Charges

Interestingly, if you wish to withdraw money before a 5 year period has elapsed, there’s a “cash-in charge” as well.  With this particular plan, that fee is 8.5% the first year, and drops in subsequent years to 6%, 4%, 2% and 1% of the value.  Some people have paid much higher “cash in” charges with Zurich, so if you have a story to tell, please feel free to add your comment at the end of this post.

Product Charges

There are also product charges which won’t appear on your investment statements, but they’re expense ratio charges based on the unit trusts you own within your account.

These funds are based on the Isle of Man, and according to an Oxford University Press publication written by Ajay Khorana, Henri Servaes and Peter Tufano, the Channel Isle fund expense ratios are among some of the highest in the world.

A look at the link provided by Zurich gets more specific.  The Aberdeen Global Asia Pacific Equity Fund offered by Zurich, for example, charges a colossal expense ratio of 3.5% per year.

The lowest charge on the equity funds that I could find on the Zurich site was 1.5% per year.

Add an additional 0.5% to 1.0% for an equity trading cost (not shown in prospectuses, but a cost of trading equities within a fund) and Zurich’s cheapest equity fund would cost anywhere between 2% and 2.5% per year.

Imagine the following scenario:

You invest $100,000 and lose 7% up front to establishing charges.

That gives you $93,000 as an initial investment.

Assume that a combination of stocks and global equities average 8% annually.

The investor in this plan would likely reap the following return:

8% minus 0.5% yearly management fee, minus 1% for the investment advisor fee, minus 2% for yearly fund expenses (including internal trading costs) = 4.5% annual return.

Oh, let’s not forget the additional yearly plan charge of $250 SGD.

Granted, you could negotiate (perhaps) a lower investment advisory charge.

But on the flipside, if you aren’t careful, you could also end up paying substantially more establishing charge fees if you don’t pay your fees all at once.

Overall, it’s quite likely that an investor in such an arrangement would be giving up 3.5% per year in fees.

Doing the math:

An investor in low cost index funds (or ETFs) would pay roughly 0.2% per year in total annual fees—possibly less.

If the stock and bond markets dished out 8% per year, the hypothetical index investor would make 7.8% while the Zurich investor (based on probabilities) would make something like 5.5% per annum.

Assume that the investor is 30 years old, and they live until they’re 85.

Assume also, that at age 30, they have $100,000 in their portfolio that will grow, but they won’t touch this particular $100,000 after they retire.  Perhaps they want to give it to charity upon their deaths, or bequeath it to their children.

$100,000 minus $7000 (establishment fee) making 5.5% annually for 55 years = $1.76 million

$100,000 making 7.8% annually for 55 years = $6.22 million

If Zurich offers additional perks worth $4.46 million (that I’m not aware of) please enlighten me.

For information on how to avoid paying high investment costs, check out my book, Millionaire Teacher, also available as a Kindle edition.

 





About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2011/10/dissecting-zurich-international-life/

23 comments

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  1. avatar
    Myke@In Search of Sa

    Hi Andrew,

    Doesn't exactly sound like a good deal, does it.

    I've never dealt with their International Life, but I did switch to Zurich a few years ago for my car insurance here in Japan.

    Excellent move. They gave great discounts for signing up online, paying all at once, as well as signing up two months before the coverage began. With two additional years of discounts (they dropped my premiums each subsequent year) I'm now paying half of what I used to pay.

    No matter what, when looking at insurance, it pays to shop around.

  2. avatar
    Colin

    Thanks for the info Andrew, I wish I had this 10 years ago when I signed up with them.

    I am finally looking to get out but checking my options.

    Keep up the great detailed work!

  3. avatar
    Neil

    Your research is flawed in some areas.

    The Isle of Man is NOT a Channel Islands based tax haven. It is an independent country with it's own parliament (in fact the old continuous parliament in the world), legal structure and taxation legislation.

    It is very easy to write articles drawing from many and varied sources which are critical of Offshore Financial Planning Centres. Equally, show you choose to you could write an equally compelling article praising them and the companies that operate within them.

    There are a vast array of products available from a vast array of suppliers. Like any competitive market be it Sainsburys v Tesco or Zurich v Scottish Widows you need to research what is available and what best suits your financial goals.

    1. avatar
      Andrew Hallam

      Hello Neil,

      Thank you for your comment. I hope that you're a Zurich International rep. Interestingly, the flawed research you exemplify comes from the fact that I term "The Isle of Man" a Channel Islands based tax haven. It would be great if you could take a specific, numerical based counter to my argument about Zurich International's investment/insurance mentioned above. After all, the fact that I termed The Isle of Man a Channel Isle tax haven doesn't appear very relevant to the article's thesis. The thesis, after all, is that the Zurich International Wealth Acount is a very bad deal for investors.

      I went specifically into the Zurich International website, uncovered a sample of their funds and costs, linked to what I found, and noted their expenses in the article above. In fact, the funds mentioned on the Zurich International website have higher expense ratio costs than those for the average Channel isle funds, based on a comparison of expense ratios between Zurich International's fund offerings and the Channel Isle fund expense averages, according to the Oxford University Press publication written by Ajay Khorana, Henri Servaes and Peter Tufano. Whether it's Zurich, or the Channel Isle averages, the expense ratio costs are among the world's highest–and that's not even taking into consideration all the other painful costs to investors, which I mentioned above:

      Again, this article was about Zurich international's wealth account. Show me that my research on this account is flawed, rather than criticize the fact that this article didn't talk about an array of other financial service companies. If I'm writing about Zurich, I must stick to my thesis, which I did.

      I believe that articles like this threaten your livelihood. You are, I surmise, an advisor with Zurich or another Channel Isle company. Dissect the math above and shoot back a valid response. It would be very welcome on this blog.

      Thank you Neil

  4. avatar
    Anna

    Thanks Neil – I got sold a Zurich IWA from HSBC over 5 yrs ago and still the fees are rolling in. Very frustrating watching the units get deducted from the different funds in the portfolio every 6 months, let alone the miserable unit price performance of the funds (seems independent of the market performance)… But the challenging market conditions I can fathom – the fees I can't… and it was all sold on the fact of flexibility to switch funds in the single porfolio account…

    So… can you recommend a trading platform for a expat in Singapore to hold ETFs, etc.? Saxo? Fidelity? Anything that's cheaper than Zurich but also with some flexibility to switch?

    Then there comes the question of when to cut your losses? Invested in '06 and '07 and now down ~14%. Heavy equities but global spread. Will the 5yr time being up really reduce the fee load??

    1. avatar
      Andrew Hallam

      Anna, I'm so sorry to hear that you got involved with Zurich. Where are you originally from? This leads to a part of my website that might help: http://andrewhallam.com/expat-investing/

  5. avatar
    IAF

    Hello Andrew,

    Thank you for your analysis, and bringing this information forth to the public. Do you have any information/advice on executing a partial surrender of this Zurich International Life policy? Do you think its a good idea?

    Thanks

  6. avatar
    NV

    Thanks Andrew for the information. Unfortunately I invested 6 yrs back with Citi Bank in Dubai. The current value is 60% of original investment ! I am constantly looking to get out of this. One has to be very careful with Zurich schemes!

    Regards

    NV

    1. avatar
      Alen

      I am in Dubai and I have same problem.
      I have paid $750 per month for investPlus policy around $40,000 till now. They say the money I have with them is only $29,000 now. They say they invested my money in somewhere and instead of profit they got lost my money!
      What shall I do now?
      Shall I continue paying $750 / month for whole 20 years?

      1. avatar
        Andrew Hallam

        Run some mathematical numbers Alen. Only you can make this decision. Do you cut your losses and earn roughly 3% more each year somewhere else? Or do you stay with them and allow them to continue to bleed you in fees? There might be a penalty to withdraw, so use your post penalty account value as your starting point for scenario 1. Then compound that money at 9% per year. For scenario 2, do the same with a larger sum (like the current value of your portfolio today) and compound that out by 6% per year. Will you catch up?

        The money you have lost appears gone forever. Bummer. Will they give you that full amount today, or will they penalize you even further for pulling out? If they penalize you even further, use the compound interest calculator and http://www.moneychimp.com to figure out whether you come ahead or behind. I’m fairly certain you would come out ahead, but give it a go.

  7. avatar
    Fernandon

    Andrew, your article on Zurich International Life is quite ellucidating.
    I have a long time investment with them. I contacted Zurich’s customers service email asking for my current account balance and surrender value. After nearly two weeks they still have not answered.
    I wonder if you ran accross any reports from clients who eventually faced difficulties in their surrender processes. And if you did, is there any intelligent step I could take before eventually asking for it?
    Compliments for your competent work!

  8. avatar
    Merlin Xavier

    Andrew,

    I am a policy holder and I need an emergecy partial withdrawal from my 5 years paid policy. I had applied 30 days back, but they are denying to pay my hard-earned money.
    With my bad experiece with this company, I can not beleive about my life policy which i am paying from last 5 years.
    No body should be under this trouble like what i am facing now.

    Merlin Xavier

  9. avatar
    Montgomery Beyer

    Andrew,

    I had applied for Insurance with Zurich many years ago. After reading this article, I am so very glad that I was not accepted for a policy with them.

    Now, almost 15 years later, I was faced with them not paying a legitimate claim caused by their insured. With your permission, I am linking this to my new website!

    KUDOS!

    1. avatar
      Andrew Hallam

      Please do Montgomery!

      Cheers,
      Andrew

      1. avatar
        Montgomery Beyer

        Andrew,

        The more I review the comments on your website and the longer I continue review information about insurance companies, the more convinced I am that these programs and benefits that insurance companies are selling to all of us is nothing more than legalized racketeering.

        I am almost finished writing an article for my website Zurichscrewedme.com that details how decadent Zurich and many other insurance companies are with regards to selling products not right for an individual to what I classify as “death-deny claim strategies” where the insurance company waits for the insured to die before they consider paying out legitimate claims.

        I appreciate your allowing me to link to your site and to help share the word that insurance companies are not always about what is best!
        http://Zurichscrewedme.com

  10. avatar
    mty

    I work for Zurich

    1. avatar
      Andrew Hallam

      And what are your thoughts?

      1. avatar
        Vig Lacera

        Hello, Mr Zurich employee, are you still there? Are you going to respond? Or have you chickened out? Scared of the tough questions I guess…

  11. avatar
    TS

    Hi Andrew, just discovered your blog and wanted to say thanks for the review on Zurich. I am an expat in Singapore and currently have a Vista policy with a basket of funds that includes commodities, equities and fixed income. This was recommended to me by the Henley Group 5 years ago. So far, the only reason it was slightly up the first two years seems to be the bonus they provide; otherwise, it is currently 5% underwater. I know everyone’s situation is different, but I continue to seek clarity on this and working out how to dig myself out of this hole.

    1. avatar
      Andrew Hallam

      Hi TS,

      I’m sorry to hear that you got nabbed in their net. Global markets have risen a lot over the past five years, so it’s very unfortunate (but not surprising) that you haven’t made money. These commission hungry firms set people walking up downward heading escalators with 50 pound rucksacks. Global markets are up 80% in the past five years and global markets are up 100%. Please do what you can to spread the word about these firms. http://sg.finance.yahoo.com/q/bc?t=5y&s=VT&l=on&z=l&q=l&c=vti&ql=1
      Andrew

  12. avatar
    Niklas

    Andrew, I want to thank you for an informative dissection of the quagmire that is Zurich International Life. I didn’t have the time to go through it but as my company “forcibly” subscribed me to them in my pension deal I did a search on google and your article turned up on the first results page. I felt that my plan wasn’t doing even close to the results that it should and here is the reason why. Well, not much to do about it, but still feels better to know that you’re being robbed than suspecting (maybe)

  13. avatar
    Diana

    Hello Mr. Andrew,

    I am planning to get Zurich’s life insurance and savings insurance..Upon meeting up with one of their agent i was convinced so I’ve decided to meet her again on the 23th of this month for the settlement..but since i got time to read some reviews about their company and i have read all the comments above and nothing was positive i guess, now i have a doubt if i will still get the policy they’re offering..Can you recommend best insurance that i should get?

  14. avatar
    Subbiah Shanmugam

    Dear Andrew,

    Greetings.

    I am a Non-Resident Indian, presently working in Kuwait. During 2005 and 2007, I invested in 2 Zurich InvestPlus Policies through Citibank Bahrain/UAE. During March 2010, due to certain Central Bank of Bahrain stipulations, Zurich and Citibabk, Bahrain parted ways, but did not communicate with me and Zurich changed my policy records as direct customer on its own and the Policies have been butchered and bleeding till today. Nobody is of any assistance including Zurich, Citibank, Bahrain Regulatory Authority, Bahrain and Ombudsman.

    Legal opinion advises me to sue both Citibank and Zurich, but I am against it so far. I am planning to take up the matter with Citibank, Chennai, Reserve Bank of India and Indian Insurance Regulatory Authority, so that Zurich will not have an easy sailing into the Indian market.

    I’d be grateful for any advice.

    Thanks and regards,

    Subbiah Shanmugam
    Station: Chennai, India
    email: sub_s2000@yahoo.com

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