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Should I terminate an expensive ILP bought from a friend?

Tuesday, January 27, 2015

I received an email from a reader on an ILP she bought and I am going to share an edited version here.

Please remember that life insurance is essential but the cost of insurance should be kept low.





Hi AK,

I have recently started to read your blog and I really appreciate how you post unbiased financial advice for your readers. As such, I am really hoping you can help me with this dilemma that I have.

I have graduated last year and bought an ILP from my friend. I am investing $xxx every month into this plan for about x months now. This is a 30 year plan, and recently I'm having second thoughts about whether to continue this plan or not. 

...

I was wondering if I should discontinue the plan (because the costs are exorbitant) and invest the money myself in the OCBC BCIP, or should I just lower my contribution to $xxx a month since that is the minimum amount. Because if I cancel the plan now, I would have lost the (money) that I put in already. Please advise! Thank you in advance!

Warmest regards,




AK's reply:

Hi,

......

I wouldn't touch ILPs with a 5 feet pole myself.

Since you have come to the realisation on your own that the cost of having an ILP is exhorbitant, you might want to cut your losses instead of throwing more money into the plan. Just a thought. Not advice.

Do a comparison to see how much money you would save if you were to buy term life instead to enjoy the equivalent amount of coverage. You could invest the savings using a program like OCBC BCIP which you have identified.

I am not giving any advice. Just sharing my thoughts. :)

Best wishes,
AK



I think that this is quite a fortunate case as the reader realised quite early on how expensive the ILP actually is and is thinking of taking steps to remedy the situation quickly now. Others could be less fortunate.

Before signing on the dotted line of any proposal, it is important to read every word, sentence and paragraph carefully. Do the necessary due diligence. Then, make a well informed decision. 

If we don't understand something, make sure to clarify. If we are still confused, do not accept the proposal. Walk away.

Cultivate this habit and it will guard us against unnecessary expenses and angst in all aspects of life, not just with life insurance proposals or shopping in Sim Lim Square for the latest iPhone.

Related posts:
1. Term Life Insurance: Why buy term?
2. How much term life insurance should fresh grads have?
3. Free ILPs or Term Life Policies?
(Warning: This is highly controversial!)

2 comments:

Derek said...

Same dilemma that my friend is facing but a bit more sensitive as this is a family friend.

Anyway, to the reader same advice as what AK said; do your own sums and make your own decision.

No one told me to cancel my endowment policy but after doing my own homework, I decide that I would be better off cancelling it although I was fortunate to almost break even.

owq said...

Wow, very lucky that she realised so early!

Sunken cost is sunken cost. What should matter is future cash flows.

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