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I took down this blog post after it was put up for only slightly more than an hour at 8am this morning.
In that short period of time, it received about 400 page views and several comments from readers, a couple of which were more than unpleasant.
After deleting the blog post, I received a few comments and PMs from readers in FB who missed reading it.
Often, we are presented with charts and tables by advisers which do not show the complete picture. I am not claiming that I am presenting the complete picture here.
I most certainly am not but I believe I have illustrated quite simply in the blog post why ILPs are not cost efficient for consumers.
They are overpriced life insurance products and as investment tools to help grow our wealth, they are mediocre at best.
I am quite mindful of my blog's louder voice and the potential backlash I might be subjected to.
Despite what some people might think, I am not crazy. I wouldn't want to get into trouble.
However, sometimes, we just have to say it as it is and this is what AK is known for doing. Right?
Feel free to disagree but please be civil about it.
However, if you think that what I have done is worthwhile and if you agree that more people should know about this, please share this with your family and friends.
So, come what may, resurrected, here it is:
----------------------------------
A reader told me that his classmate from school who is trying to get him to buy an ILP told him that, basically, after 20 years, he will break even on that ILP. It means that he would have received 20 years of life insurance for FREE!
Sounds really attractive when the word FREE is thrown in, doesn't it?
$1,000,000 life insurance coverage with a premium of $13,000 a year. That is quite a bit of money.
Anyway, because I have been blogging so much about buying term life insurance lately, the reader was quite torn as to what should he do.
So, my simple brain churned out some simple numbers.
If he were to buy a $1,000,000 term life insurance instead, he would pay less than $2,000 a year, being in his early 30s, for the next 20 years.
That means a savings of more than $11,000 a year.
For ease of calculation (i.e. my ease of calculation), let us assume that the term life insurance premium is $3,000 a year and that the savings is only $10,000 a year.
Yah, only $10,000.
 |
| It is time for some magic! |
Now, assuming that the reader were to invest the yearly savings of $10,000 into stocks of fundamentally sound businesses that have a dividend yield of 5%, he would, in 20 years, receive in dividends, from year 1 to year 20, the following:
$500
$1000
$1500
$2000
$2500
$3000
$3500
$4000
$4500
$5000
$5500
$6000
$6500
$7000
$7500
$8000
$8500
$9000
$9500
$10000
Total pocket money (nothing reinvested) collected in 20 years: $105,000.
Pause.
Sinking in.
Pause.
Sinking in.
Pause.
Sinking in.
 |
| Stunned? Banana... |
$105,000 is more than enough to pay for 20 years of premiums for a $1,000,000 term life insurance!
In fact, it is about twice as much as the hypothetical premiums and probably thrice as much as the real premiums!
So, isn't this a FREE life insurance as well?
In fact, it is better than FREE since there is a lot of money leftover!
Chances are that the $200,000 worth of investment would still be intact 20 years later and it would continue to generate income year after year.
That is $10,000 a year, year after year.
I know this is a simplistic example but it makes the whole matter of why an ILP is not a good choice so much easier to see.
I believe that the assumption of a static 5% yield on investment is not over the top either. In fact, it could be quite unrealistic, in a good way.
Anyway, I believe I created another problem for the reader after our chat.
He said:
"thanks, and i having some headaches how to reject my friend now..."
Oh, dear. Sorry. -.-"
Related posts:
1. Term life insurance: Some lessons.
2. Term life insurance: Why buy term?
3. Whole life insurance and investing.
4. Investing for income: An important element.
5. The best insurance to have in life.
Bloggy Award
117 comments:
SMOL, Paiseh but can repost your comment here? Kamsiah. :)
Hello AK,
No worries! I'll stand by you ;)
Here comes comment 2.0:
I think you won't be popular with insurance salespersons out there after this post.
If people out there become more financially literate, the insurance salespersons may experience what the remisiers experienced when brokers' commissions were liberarised...
Additional comment after this blog post's resurrection (I'll removed my gloves too):
I used the word "salesperson" for a reason.
Fellow salesperson, if you call yourself an "agent" or "advisor", pray tell why are you incensed?
Shouldn't you be acting for your client's interests since you are "supposed" to be your client's agent and/or advisor?
Jared Seah
Hi AK,
Kudos to you! I read the post this morning and thought it was an excellent post.
Those with vested interest would of course have reasons to be riled. It's their bread and butter that you are throwing off the table.
Be the voice of reason and the voice would be heard. Pleasant or not, it will depends on whose ears it falls on. You know who you are writing for.
No need to be crowd pleaser.
Thanks for taking time to do up the numerical illustrations. :)
Hi SMOL,
Kamsiah very much. I want to shake your hands but please put on your gloves first. ;p
Hi Endrene,
Thank you so much for the encouragement. I appreciate it.
You like the numerical illustration? Well, mathematics has always been a strong subject of mine (up till primary 6). ;p
Hi AK,
Hope I could see this post many years ago when I buy some ILP. Luckily it's little so I decided to continue later. We should never ever miss insurance with investment. The former is to avoid risk, while the later is to take risk.
Hi Tony,
Not mixing insurance with investment was something I learned only after a few years into my life as a working adult. Ironically, the first person I heard this from was an insurance agent, a friend of my dad's.
Anyway, I am not saying that ILPs don't have a place in the world of personal finance. For people who are not very savvy financially or simply cannot be bothered to save or invest for their old age, this could be a simple solution for them. :)
I have offered an olive twig. I hope I will be able to return SMOL's instant noodles pot to him soon. ;p
Excellent post. :)
I support you.. Excellent article..
If you need a salesperson to sell a financial product, it probably isn't very value-for-money in the first instance. Good products sell themselves easily, anytime.
From my FB wall:
By Chang Han Thomas,
"i give my take here I think with a face behind the comments, won't be so hostile lol I treat whole life as a base, then add on term to boost the coverage. Whole life is added very early on, because I'm not sure about my own savings ability and investment capability. If I suck at both, whole life will be my last line of defense against my own stupidity. As I get older, I realised that I can save decently, and invest decently, so whole life isn't that big on my priority now. Still it serves as a good base to work from."
Hi pf and Clement,
Kamsiah both of you. Tell your friends and family. Appreciate it. ;)
Hi E H,
Well, to be fair, sometimes, there could be good things out there but, somehow, the news failed to reach certain people.
When I blogged about OCBC 360, surprisingly, quite a few readers told me they opened accounts after reading my blog. ;)
So, if it is good value for money, come, come, talk to me. I might not have heard of it. ;p
Hi AK,
I clicked on the post this morning but couldn't see anything. Thought I missed out on some good and free deal. =p
But now I see... the perils of popularity. Guess I should be glad that I haven't haven't received that many nasty comments in my blogging journey so far. =)
Anyway, I thought it would be interesting to see these "nasty" comments. I am sure if there's little merits to their argument, most of us should be able to see through them.
Had a bad experience with ILPs when I was only 19. Was "sold" the policy by some young and pretty lady. The perils of youth... =p
On a more serious note, I think "buy term, invest the rest" is a better strategy for most people, as long as they can minimally stick to a "dollar-cost averaging" STI ETF plan.
Regards,
My 15HWW
Hi 15HWW,
Which is worse? Perils of popularity or perils of youth? ;p
I remember you had a close encounter with nasty comments too. That inspired me to write a blog post on the topic. LOL. ;)
Anyway, I shouldn't have deleted the blog post in the morning but I was threatened with legal action and that spooked me. I kind of regretted it.
Well, I am quite lucky that a guest blogger here knows how to resurrect deleted blog posts but, sadly, not the comments.
So, here it is. Glad you like it. :)
Hi AK,
Youthful and popular? Most people would tahan the perils and accept these traits wholeheartedly. =p
You have a good memory and I have to admit I was a little "reckless" with that post, since I realise there are many people out there who just reads headlines.
Legal action?! If that's the case, I probably would have done what you did and kudos to you for standing up to these "bullies". =)
Hi AK
You are not the first one to touch on this topic. I bet you will not be the last.
There is a rising trend in recent times that people are more aware financially and this is bad news to those insurance sales people. Those days where they can just sit there and eat the low hanging fruits are long gone after the 2008 financial crisis. I think you are just going to be one of their growing list of targets to vent their frustrations.
I am glad that you are using your blog to slowly instil more financial literacy to your readers. I's sure they will stand to benefit.
You have my support all the way AK!
Vincent
Hi this is just my opinion, many said that buy term invest the rest and ILP suck. I beg to differ abit la don't bombard me thanks, "buy term invest the rest" is good for those who are financially prudent because they know how to invest and maximize the returns + they are well discipline to have an emergency fund, so when any catastrophe event happens they're able to tap into their saving and still pay for the insurance, this group of people should go buy term and invest the rest.
however there will another group of people thinks that hey i'll like to buy term and invest the rest BUT when things happened they will go "walao no enough money how to sustain the insurance policy aiya cancel la when got money then say" you'll be surprised how people will react when shit happened. so if this group of people bought ILP and something happens they can stop paying for the premium for awhile and still got the coverage so when things settle down they can still continue to pay the premium. most importantly they're still covered. I know somebody is going to think otherwise but this is just my opinion.
I'm a financial adviser though, don't get me wrong. I myself advocate buy term and invest the rest but not everybody will subscribe into this school of thoughts.
Hi 15HWW,
Physically, I am very fragile. I am afraid of bullies. Let us see if I am still standing a few days later. -.-"
Hi AK,
I don't think you have anything to fear. You are just voicing your own opinions without attacking anyone. The ILP and BTITR debate has been going on for ages.
To the reader who is undecided, just know that you do not have to answer to your agent/schoolmate/friend. You don't have to give him a valid reason why you should or should not pick up the policy. You just need to convince yourself how you want to use your own money.
Cheers!
Hi Vincent,
I like to think that my blog post is realistic. :)
I am not saying that investing in the stock market will make us rich very quickly.
In fact, at only a 5% yield, what I am suggesting is not going to make anyone rich. It will only beat inflation by a small margin but, already, it is going to perform better than the ILP referred to in this blog post.
I believe that education will empower people to make the best choice. Notice I did not say "correct choice". -.-"
Hi 玉龍,
I feel that money is a scarce resource for most of us. So, trying to do more with less is important.
This was what I said in FB just now:
I made the comparison in my blog post based on the arguments put forth by the reader's agent.
1. $1 million coverage for $13K a year
2. Free insurance 20 years later (break even)
So, I offered what was a more cost efficient method of achieving $1m coverage and getting it for free. I don't see anything wrong with my methods.
Of course, someone else could have done a comparison between ILPs and traditional whole life insurance policies too.
I am not concerned with fairness to the products... I am concerned with achieving the best results for the reader.
However, I have to admit that I do not know everything there is to know. :)
Hi Derek,
Thank you so much for your bracing comment. OK, stiff upper lip and soldier on! :D
In case I receive a lawyer's letter, you help me settle, can? ;p
Ak, that is some interesting financial advice. Do take your license first. A person who didnt apply for a license, talking to himself with a loudspeaker, is still without a license.
AK,
On 22 Oct 2010, at the NTUC's 40th anniversary, Senior Minister Goh Chok Tong said,
"I could not afford a Whole Life Plan but had the good sense to choose a Term Assurance policy. Protecting my young family then was more important than leaving them my Whole Life insurance payout after they are all grown up when they need the sum of money the least."
Mr Tan Kin Lian would have been sued many times over for "sharing" the many truths of the insurance industry. He safe; you safe.
You stand tall now ;)
P.S. May I have my instant noodle pot back?
Hi AK,
I agree with you, to be frank ILP is the most lucrative products to the insurance agent and insurance company but i just want to voice out my opinion ILP has its own pros and cons. well at least for me i can't say ILP is all bad and advise all my client to shoo away from this product. to me it's merely a tool to help solve their problem, at the end of the day it's what gives the client the value. I've encountered quite a few times that ILP can beat a term flat well some people might think "yayaya he's an agent of cause say ILP is better" well whatever.
My point is that all insurance product is just a tool how to use it it's up to the adviser but as long as it helps people to achieve what they need and want and it's proper i don't see anything wrong.
For those who are financially prudent i think buying term and invest the rest definitely gives you the best value. but before you buy term invest the rest please have your own emergency fund for at least 6 month to a year.
Hi SMK,
This morning, I got a couple of comments like yours but not as mild as yours. Then, I decided to delete the blog post. -.-"
Hi SMOL,
Aiyoh, you are talking about Goh Chok Tong and Tan Kin Lian wor. I am just AK71 of ASSI. -.-"
Please refer to SMK's comment. I hope my Ip Man + Blue Brothers disguise is good enough to protect me. -.-"
I am just stating that a spade is a spade.
Gck is talking about his own decision process for his action. Ak in this instance is not talking about his own past action.
If I explained about my decision to take a certain route on a car journey, I am not giving advice. If I explained that people on a similar journey should think of taking a similar route to mine, that is advice.
A spade is a spade. A club is a club.
Hi 玉龍,
Oh, I am sure ILPs have their place in the grand scheme of things. This was what I said in reply to Tony's comment earlier too. They are probably suitable for some people. :)
Hi SMK,
Not as mild this time round. LOL. ;p
Well, actually, many things in this blog are better left unsaid, really, due to legalities. I know this. -.-"
Sometimes, I have a feeling that the law protects or penalizes the wrong people. Well, that is the way with the rule of law. Take the good with the bad, as they say.
I will try to restrain myself in future. Thanks for the reminder. ;)
AK,
LOL! I wonder SMK will tell Lao Goh to take his license first before talking?
It's clear where big daddy is nudging the insurance industry towards in the future.
This is a start:
http://www.mas.gov.sg/news-and-publications/media-releases/2014/buying-life-insurance-products-directly-from-insurance-companies-without-commissions.aspx
Especially great for new entrants into the workforce who are tight with cash flow.
Hope MAS can invite you and other powderful bloggers to lunch again to spread the good word ;)
AK for President?
Opps! That's a bit over the top. My bad. I too "chong dong"...
LOL!
Hi SMOL,
Aiyoh, bu yao hai wo. -.-"
I will need your instant noodle pot for a while more. What? Get my own? Don't be so like that lah. ;p
Well, maybe, I will go get a license. Be a part time insurance agent who sells only term life insurance and H&S. This is a possibility. :)
While this topic is still ongoing....
CPF Rate and HDB Housing loan rate remains unchanged.
http://www.channelnewsasia.com/news/singapore/cpf-interest-rates-to/1368004.html
Buy term and save the premium. Then consider doing a top up with the premiums saved to CPF SA and enjoy Tax savings.
One stone hit many birds :)
Hi AK,
A spade is a spade indeed. You just showed the numbers and compared how one deal could potentially be better than the other using an assumption.
Should car forums be closed down and commenters be sued because somebody said one car runs faster than another, and with the make and brand of the car explicitly stated?
The person who threatened legal action needs to go get some education before trying to throw his weight around.
I would request the unhappy readers to show me their track record in their ilp's positive result on ROI.....
please don't give me estimates.
Insurance and Investment are spell differently for a reason.
Without an insurance license i know i will not buy anything I don't need.
if so good, you buy and show me your POSITIVE ROI, then we talk and compare.
I support you!
Hi Solace,
Haha... I like that strategy. ;)
One stone kills many birds. You terribly violent person. Tsk, tsk.
You should try playing Angry Birds. There is this bird that clones into 3 when launched into the air. I cannot remember which color is that bird now. ;p
Hi Endrene,
Yup, I know what I am doing seems harmless enough but my training in law is limited to some bits of Business Law and that was 15 years ago. So, maybe, I should just err on the side of caution.
Simply sharing my thoughts could be construed as giving advice and it could land me in hot soup. Not worth it, right? Why do I always say I am just talking to myself? LOL.
Apparently, that might not be convincing in the eyes of the authorities. :(
Hi Kenji,
Sounds like you are issuing an ultimatum. Oh, dear. No, we don't want any escalation of tension. Hmmm... Escalation of tension. This sounds like something which might come out of some country in Europe that Russia has an unhealthy interest in. ;p
Having said that, I do appreciate your support. Thanks. :)
Hi Benji,
Hey, long time no hear. Thanks for the support. I appreciate it. :)
Hi AK
I have been following your blog since I stopped working in April 2013. Your blog have been both an admiration and inspiration to me and I have learned alot from you not only on Reits but also on how to look forward towards a meaningful journey in life.
You are only commenting on your personal blog and no mention on any particular insurance company. Kudos to your frank opinions and do ignore those childish negative comments that try to discredit you.
I look forward to your blog everyday and thank you for the insights.
Sorry for my poor english..hee hee
Regards
Yeo K K
Hi Yeo K K,
Welcome to my blog. :)
Many things I do in terms of personal finance and investment have my retirement from active employment in mind. I think planning early for retirement is probably one of the most important things we have to do in modern day society.
There are some things we can do that will help us along and there are some things we can do that will hold us back. I am very happy to share what little I know and what has worked for me.
Thank you very much for the encouragement. I appreciate it. :)
Hi AK,
"Legal advice is when an 'officer of the court' (i.e. a lawyer) gives a formal opinion to someone on the legal consequences of a particular course of action, and the recipient relies on it. What sets legal advice apart from mere legal information is the application of legal rules and principles to a specific set of facts -- legal information is by contrast a mere restating of the law."
Substitute 'legal' with 'financial'.
If you are not even a financial advisor to begin with, how could your comments be construed as financial advice?!?
Sorry, maybe I'm the one who needs to be educated.
SMOL, I'll join you to enrol in Law school.
And by the way, what is the disclaimer at the bottom of your blog for?
Please don't misunderstand.
I am not expressing support for either of ilp or btitr.
I am just saying that the article constitutes advice as opposed to sharing ownself action.
That's all.
Ak understood the gist of the comment the best.
No ill intentions and it is not intended to be harsh or mild.
Nor to diss nor to piss nor to agitate.
There is good value in ak's blogs.
Hi Endrene,
Although the disclaimer in my blog was vetted by a friend who graduated from law school, I have been told that it might not stand in a Court of Law. :(
I have also been told that the disclaimer does not show up when people surf my blog using their mobile devices but I have not really bothered to do anything about it... until now.
I just disabled the mobile version of my blog after some thought. That disclaimer, for what it is worth, is important. -.-"
As for Law school, I can tell you that to do a Degree in Law in our 40s is no walk in the park. It is more like walking in the dark. Haha... I wish you and SMOL the best.
Please graduate with at least a 2nd Upper so that you can get a practice and I can get free legal aid. LOL. ;p
Hi SMK,
Yes, I hear you loud and clear. :)
OK, I am just being kaypoh here. Don't take this the wrong way. Are you in the legal or financial advisory professions?
This question just kept going around in my head and I just have to get it out. Can reveal? ;p
Hi AK71,
After reading the comments, the following are my opinions.
This is a sensitive topic. If you are afraid of legal issue, it might be better not posting. It is better to have a good night rest than worry. You don't own the readers a living.
Some knowledge are worth sharing and teaching. But some better share with only your close friends. By openly discussing and advising someone on ILP products (cash cow for agents), you are going against the agents.
Actually Insurance is easy as long as people want to learn. I had just gotten both diploma on life insurance and general insurance from SCI. But I'm not an agent and never will and want to be an agent (hard to earn money without selling high commission products) Paper wise, i think I'm wiser than these agents. Practically wise, I am lucky to have friends working as underwriters for both life and general insurance. Hence, when I'm in doubt of any products and its mechanism, i go straight to the underwriters. Thus, when i buy, i go to the company counters to buy and say no to all the nonsensical products. If i need to claim, i ask my underwriter friends to link up with their claim department for fast claim processes.
Hence, it will be better to educate the reader to pick up the basic knowledge about insurance and instill a mindset that I pay for my insurance, i need to know every detail of the policy before committing. It is because it is long commitment.
Just my two cents. Cheers.
Hi AK,
Here's 2 cents from another practitioner in insurance. ;)
BTITR is a fundamentally very sound strategy. However, often human psychology and changes in life plans also play a big part in skewing things. Here's, IMO, how ILP still maintains some relevance.
1) Think young adult in 20s or 30s.
This guy hates his job or his boss, or he suddenly has a brilliant business idea. He quits his job and starts his own business. At the beginning, he earns zero income and digs into his savings. Soon after, he would call his agent and say, I want to stop paying my insurance premiums because I have no more money!
If he has a term policy, stop paying equals no more coverage. If he has an ILP which he has paid for maybe only 1-2 years, there would likely already be some investment value in the policy. So, the insurance charges can continue to be deducted from the ILP investment value. Being young, the charges are low, which means he might continue to get covered for as long as several months to one year, which might be enough time for him to start earning from his business, or give up and go back to being an employee. Then he can pick up from where he left off paying premiums for the ILP. Whereas, he would need to buy a new Term with premiums based on his current age and health status.
This actually happened to one of my clients. Sadly, the first thing a person often cuts from his spending when he is short of money would be insurance, when he needed it the most.
2) Picture someone in his late 50s or 60s.
Then Term may not always be cheaper than ILP. And it is definitely not as flexible. Compared to the insurance charges of the ILP at this age, Term would usually be more expensive.
What if the investments over the years haven't managed to yield the returns you expected, so you still need some insurance to cover the unexpected personal crises. Or, what is getting more common nowadays, your housing loan is not yet paid up, your kids are still really young because you married late. You have a bunch of huge financial commitments that your investment assets are not able to cover. You need insurance.
By now, if you are still paying for term insurance, you will find that the total premiums paid are rather high already. If you are buying new Term plans, you will find the premiums forbiddingly high.
Comparatively, if you have an ILP, which you have paid for the last 20-30 years, you might happily cease paying the premiums and continue to get insurance protection by letting the insurance charges deduct from the investment value which should be quite substantial by now. If you don't need so high a coverage any more, just reduce the sum assured, so that your insurance charges are lower. If the investment value ever gets to a dangerously low value, just do a small top up to keep the policy and coverage alive.
This is what I would do for myself, or my loved ones.
Of course, we can't just depend on ILP alone to give us coverage. I usually couple it with Term for the beginning years when the client needs higher protection. By the time his protection needs are reduced, and/or his investments have grown significantly, his term plan can be terminated, and he can choose to keep his ILP or encash it. I believe this is the most cost-effective and fail-safe method.
Then again, there may be better solutions out there. We are all learning. I only started reading this blog recently and have been learning a lot on investment and property from AK and the fellow commenters. Really appreciate the sharing spirit here. Please continue to share your knowledge.
Regards,
ZXF
Hi AK,
I'll just like to pop in and say I support BTIR (Buy Term and Invest the Rest)
The main reason is tying investment with insurance makes it difficult to dismantle one or the other when circumstances change and warrant changes to the financial plan.
Only little problem is some may not have the discipline and time to learn how to invest. For those people, using the services of a good financial advisor may be good.
Tree
Disclaimer: The above constitutes a personal opinion and should in no way be taken as professional advice. Insurance is a long term commitment and should only be undertaken after consulting professionals with the relevant qualifications.
AK,
Let me recount my experience with these friends (who happened to be "financial consultants".
There are plenty of investment linked plans that are dressed as a retirement plan (given recent coverage on retirement matters). My friend is trying to sell me one. Not wanting to say no at the first instance, I asked her to send me the details and figures.
My friend was singing praises of this plan her company has (when I last saw her). It's 2-3 weeks since, & I have not seen her proposal...
The annualised returns , at best, ranged 3-4pc.
Now, I think I probably could do better if I invested the amount (equivalent to premiums paid) in a good blue chip...
Simply unreliable....& dodgy (at best)!
Hi youngnewbie,
I spent quite a bit of time thinking about this and I think it might be worthwhile getting a license as suggested by SMK. Of course, regular readers will know that it is not because I want to make a living as an insurance agent or anything but it will be a useful thing to have, given my inclinations. :)
As for this blog post, I think I will leave it and not delete it a second time. I have been advised last night on my FB wall by quite a few that I did not cross the line here and I am safe. Lucky that I didn't name anyone or any product from any company. I also did not derive any financial benefit.
Thanks for weighing in on this. Appreciate it. :)
Hi AK,
1) By term policies, we are talking about those that we cannot get back any sum of money right?
2) By ILP, we are talking about policies that will reinvest and promise us an illustrated 5% or 8% return right?
3) If someone wasn't as savvy previously bought ILP insurance (and very angry at himself / herself right now), would canceling the policy and take on new term policies make sense?
Always grateful to hear your personal thoughts (not advices) about our questions.
Cheers.
The only insurance plan I think is crucial is the H&S one. The rest can have can don't have.
Hi fishlie,
It is definitely true that seniors who might want to buy a term life policy for any reason will find the premium extremely expensive. However, I find it hard to understand why someone in his 50s or 60s would want to get more life insurance.
Surely, the example you gave of someone who married late and had young dependents in their golden years is possible but people like that might not even form a small minority of the population.
What my simple mind tells me is that insurance should be cost efficient. So, it is about how much insurance we can get for every dollar we put in. It is just like everything else in my life now. It is how much value I can get for every dollar I put in.
So, to overpay for life insurance by getting an ILP and to overpay by a lot just so that we can have some flexibility in case something like what you have shared should happen sounds excessive to me.
Having said this, I do appreciate your comment to help balance the view I have expressed in this blog post. Keep it coming. :)
I miss the mobile version of this site. Full-version sucks :(
Hi Tree,
Yup. I do agree that for some people, ILPs could be the way to go.
These are probably the people who cannot be bothered to find out more about how they could make their money work harder for them.
They cannot be bothered to invest for greater returns, even if it is something as simple as a regular monthly contribution to an ETF through schemes offered by POSB or OCBC (duh).
Or they could simply be awashed in money. "Never mind lah, what is a few thousand dollars extra in payment yearly. Got so much money also cannot finish using in a few generations." ;)
Well, the reality is that, for most of us, money is a scarce resource and like I have said so many times before, money should go to where it is treated best. :)
Hi Ana,
The only retirement products that I would buy from insurance companies would be annuities and as long as they present annuities as annuities, I don't have an issue with them.
Don't pretty them up and call them something else and claim that they can do something that they cannot.
An ILP for retirement funding needs? I think my blog post here shows how it could be a poor choice. -.-"
Hi Ray,
Question 1: Yes.
Question 2: In general, yes, but I don't think they promise any ROI unless there is a guaranteed portion.
As for question 3, it is not a simple "yes" or "no". You really want to talk to someone with a license to give advice but try to find someone with a license who will give good advice. ;)
I am going to start talking to myself now.
If I were harbouring thoughts of cancelling the policy, I must really see what it would cost me. Does it make sense?
Of course, when I talk to myself about costs, I will think of opportunity costs as well. If the money did not go to A, would it do better if it went to B.
OK, end of talking to myself.
I have a couple of whole life insurance policies which were bought when I was much younger, one in my teens and one when I graduated from university. Of course, they are very expensive compared to term life insurance.
There are non-financial reasons why I could not terminate these policies. Now that I can, I wonder if I should.
I spoke to a friend who is also an insurance agent but from a competitor and he said I might just want to maintain the policies and consider them as a conservative part of my portfolio. This is somewhat persuasive, not totally.
Anyway, for question number 3, this person would have to get down to crunching some numbers and question his motivations for buying that policy. :)
Hi Ricky,
I agree that H&S is a must have for everyone. This is probably why the government imposes Medishield and, soon, Medishield Life on everyone.
If we can afford the best private H&S available, we should consider getting it while we are still relatively free of medical conditions. :)
Hi E H,
Yes, I know surfing on a mobile phone with a small screen is not easy. Unfortunately, my blog's disclaimer only shows up in the full web version and not the mobile version. :(
Very good illustration AK. Insurance is for protection period.
Get the cash-flow moving. Stay positive month on month and increase the passive income til it covers the expenses and you can easily double or triple your net worth in no time.
Do not at anytime be tempted by future upside potential... nothing is certain. Spread your risks.
AK,
Ha, ha, not only do you need to qualify to be a registered financial planner, you need to qualify to be a real estate agent as well. Top that up with a qualified stock broker also.
Why? You talk about real estate and stocks too, no?. Expressing your opinion is very different from advising clients on what to do for a living. There is a world of a difference between the two.
Hi Apex,
Yes, buy insurance for the sake of insurance. Try not to mix up insurance and investment. That is a good thing to remember. :)
Hi Matt,
OMG! Nooooo! So many courses? I don't think my ageing brain will be able to cope. :(
I must be careful not to cross the line or lines with the stuff I say in my blog. So stressful and I don't like stress. -.-"
Wa AK,
Didn't expect so many comments!! I support you.
I have many friends and my sister is in the insurance line too. I almost quit my job to become a insurance agent too 4 years into my job. Lucky I never quit. Here is my convictions:
1) BTITR does not work for everyone, in fact, it does not work for many. Investing is a risky business and many have to pay school fees first, and then here and then. One might be better off with a good saving/ endowment or even life plan.
2) ILP sucks, my sister don't peddle it, I told my "boss to be" during insurance training I don't like it, I think it is a flawed product. He tried convincing me, (he is my friend too) but to no avail. He then told me, look its up to u, there are some many products to peddle, and there is no quota to ILP.
Many insurance friends choose not to sell it at first call, only when asked, will they offer. Very telling already, isn't it?
My view only...
Hi Mike,
Thanks for your support! Means a lot to me! ;)
I think how an insurance agent behaves really says a lot about what he is after. Is he putting his clients' interests before his own?
I am glad to hear that the agents you know would not push ILPs first to their clients. :)
Personally, I view from the angle of effect of deductions & ongoing fees too.
Just a wild thought, how will BTITR using term insurance & unit trusts RSP offered by the same financial planner sound? In this case, the same financial planner chart out the entire plan & advise on the monitoring too.
Hi Ak,
It is the matter of choice. Different people has different priority.
MO chicken rice vs the best hawker chicken rice:
A: I choose MO chicken rice because it is tasty, and I prefer to eat comfortably, I don't care paying more than its worth.
B: I choose the best hawker chicken rice as it is even tastier, much cheaper and value for money. I am not a moron ok!
The best hawker chicken rice vs the worst catering chicken rice.
A: of course I will choose the best hawker rice, you think that I am stupid? you pay the same but you get much nicer and tastier food.
B: I will choose the worst catering chicken rice as long as i don't need to queue, save my time, and first of all, healthier food is my top priority, time is secondary, taste and volume are trivial to me.
ILP vs Investing your self vs term insurance.
A: I will choose to invest myself and buy term insurance. ILP is a gimmick, you pay more than its worth, you can easily get 5% in blue chip dividend paying stock than the pathetic 2% from ILP.
B: I will choose the ILP as I need a protection plan and at the same time a saving plan. 2% or 5% is equally pathetic compares to my business return of IRR 80% and MARR of 15%. I just need a less troublesome force saving plan cum protection. I won't waste my time in the stock market as it performs poorly when compare to my business and property investment. 2% or 5% is rubbish to me.
I do think that there is NO good or bad product to a consumer as you have the rights to choose, I do think that there is good or bad decision.
The worst decision is a decision made without knowing your priority.
Casey.
Hi AK,
I simply love all yours posts, especially the highly sensational ones such as this IPL vs LTP. While there is a need to possess a license in order to provide financial advice, there should be no worries about the legal repercussions from providing financial advice here. Do keep them coming in!
Under the Section 4 'Excluded Financial Advisers' of the First Schedule of the Financial Advisers Act (Chapter 110):
Any person who owns, operates or provides an information service through an electronic, or a broadcasting or telecommunications medium, where —
(a)
the service is generally available to the public in Singapore;
(b)
any advice given, or analysis or report issued or promulgated, is given, issued or promulgated only through that service;
(c)
that person receives no commission or other consideration, apart from any fee received from subscription to the service, for giving the advice, or for issuing or promulgating the analysis or report; and
(d)
the advice is given, or the analysis or report is issued or promulgated, solely as incidental to that person’s ownership, operation or provision of that service.
In fact, financial advisers can be taken to task for selling unnecessary policies or policies which best serve their interests, rather than their clients' interests.
So, AK71, do keep your posts coming in. I, and may I say many others, would want you to peel and reveal the ugly side of unsound financial advice.
ET
Hi eruption,
Violent nickname! Hope it is because you like volcanos and not something else. ;p
Anyway, knowing what I know now, I think unit trusts are probably not good choices either. Just buy term and invest regularly in an STI ETF. Over a very long term of, say, 20 to 30 years, it would probably do much better.
Hi Casey,
I had a good laugh reading your comment. Thank you. ;)
This comment should really be a guest blog so that more could see it. Next time, if you have something like this again, please email to me, OK? I will put it up as a guest blog. :)
Of course, you are right about how people should know their priorities. I agree.
So, for the businessman example you gave, priority was probably to save time. Motivation was to have life insurance and to save money.
Answer:
Buy ILP? Maybe.
How troublesome is it to buy term and then sign up for a regular investment plan with OCBC or POSB?
Monthly deductions go into the STI ETF. No hassle at all, I feel. ;)
If making a one time effort to find out how to get the best deal is not a priority for someone, then, that someone might just end up with an overpriced life insurance. If he has money to burn, then, there is no real problem. I am just being a busy body. LOL.
Hi ET,
Welcome to my blog!
Wow! Are you a lawyer?
Thank you so much for setting my mind at ease!
"...peel and reveal the ugly side of unsound financial advice."
Peeling sounds really painful. You sure we won't get into trouble for torture? -.-"
Well, AK can now blog (i.e. talk to myself) about such topics with much more confidence! :D
Copy and paste disclaimer in every post la.
Hi E H,
Aiyoh, so ugly. Don't want lah.
Anyway, try surfing my blog on your mobile phone again. ;p
I didn't realized its such a big hoo haa over this post. How can it be an advice since you were not targetting at anybody? And you are not even being paid. Lol...
But i do agree with one of the comments that an instrument is not definitely good or bad. Depends on how you use it.
Many ppl tells me that endowments are not worth it. Also due to the distribution/selling costs in it. However, it really helps me to save. Given my nature of not liking to purposely save or budget, its a good product for me.
However, i don't hv ILP. Felt that I'm taking on too much exposure that is not within my control like that. Haha. ...and for long term.
Hi pf,
Endowment plans are savings plans. They are helpful to people who find it hard to save. They are useful if people want to save for something specific in a given number of years.
I bought two endowment plans, one when I was doing NS and one when I was an undergraduate. They were for 30 years and 21 years. I thought it would be good to have extra money when I turn 55 and 45. Of course, now, I know better how to have extra money. But for people who don't, endowment plans are worth considering.
It all depends on how knowledgeable we are in matters of personal finance and investment. We choose the best option there is, given our knowledge and temperament.
For a friend who had trouble saving money, I told him if he doesn't see the money, he won't spend it: Don't see money, won't spend money.
I will end by saying that we should be educated in the options which are available. If I had known what I know now, would I still have bought the whole life and endowment plans which I bought so many years ago?
Haha...if i had known, I would still buy. There should be products with varying degrees of risk and maturities in my portfolio. More risks, more monitoring. Quite tiring leh.... haha...
Hi AK,
I am a believer of buying term and investor the rest, so I support you. I don't think you will get sue over this as long as the info given is a matter of fact. In my opinion, a 5% yield is an understatement, considering our STI gave around 9% annualized over 10 years( with dividends reinvested). I like my insurrance to be classified as an expenses instead of have two components.
Hi pf,
I always say that there is more than one road to Rome. I am not dogmatic.
We choose the road we are most comfortable with, given what we know and our abilities. That is good enough. :)
Hi Maximillian,
Yes, over a very long term, the STI's track record is a return of 9% per annum on average. I wonder if it would continue to be 9% per annum in the next 20 years? I have no way of knowing.
However, I believe that 5% is definitely achievable. Just a personal belief. ;)
I am quite happy if the returns on my investments beat inflation year after year. :)
Hi AK,
Thanks for the fast reply. Don't get me wrong. I am not saying you were wrong. However I like the way you were conservative about the return on equity to portray what you r getting from ILP compare to term n invest the rest.
Keep them coming. those who r not financially savvy will ultimately become savvy after reading your blogs.
PS: What happened to your bowling ball? *winks*
Hi Maximillian,
Actually, my bowling ball has been whispering to me lately that I should be accumulating cash. I wonder if I should listen to it... -.-"
Hi AK,
I guess thats prudent, considering the PE of our sti is reaching the high side. I used to have this problem when i stock picks. Now that i have became an indexer with a faction of portfilio in cash and bonds, i stick to a rule of thumb to increase my bond allocation by 1% per year, and increase by 5% when i think the stock market is overvalued.
By doing nothing with the dividends and monthly contribution, we are adding into our bond and cash allocation. Save the transaction cost!
Hi Maximillian,
Yup. I am slowly reducing exposure to the stock market not by offloading my investments but by increasing the proportion of cash I am holding. ;)
Hi Fishlie,
Pardon my possible intrusion, but do you have an ILP?
If memory serves me well, an 0% of the premiums for the first 2 years goes into your investment units. So for the young adult who has paid for maybe only 1-2 years, there would likely to be ZERO investment value in his policy.
Also If the young adult were to BTITR, he would also have invested the difference for the 1-2 years, this would provide the "investment value" for him to pay the term premium which is probably very low (less than $200 for $1mil coverage) given his age.
For someone in his late 50s of 60s buying term, I have not found a single term policy in DIYinsurance that cost more premium than ILPs for the same age group.
Perhaps I'm a frog in the well, but I would appreciate it if you show me some numbers.
Rds,
Matthew
Hi Ak,
let me give real number. I bought ilp in 2008 when I first graduate and pay a fixed sum every month. people told me at that time that I need to invest and ilp is best since it give both insurance and investment.
Today in 2014, I only has 40% if the total capital invested left. The agent keep saying that 20 years later I will break even or even earn. Imagine how possible is it to break even or earn after 20 years given that insurance cost will increase and both the insurance company and unit trust portion of the ilp take away at least 3-5% as commission and expense ratio every year? Anything u earn from this ilp is only if the gain hit at least above 5%.
if you look closely into how your ilp monthly statement works - lets say you put $100 per month. They will use the $ left from the $100 after minus commission to buy the unit trust. after which they will sell your unit trust units to pay for the insuance cost and deductible. Isnt it cheaper to use your $100 to cover the insurance and deducible cost first? why buy unti trust units and then sell again? :) think carefully and you will get what I mean.
for my case, I am stuck. I know ilp is no good but cannot cancel it because I suffer some illness recently. if I buy term plan and cancel ilp, Iikely I will be charge a lot more for term plan as compare to other ppl with no illness.
okay. getting naggy and end of story. advise to young ppl, get some whole life and some endowment plan when you graduate while you are young and healthy. shield plan is a must too. avoid ilp if possible. Rsp sti etf if you dont know how to invest.
disclaimer: the above are based on my views only and not attacking anything :)
Hi OT,
Thank you for sharing your own experience. It is always very helpful to hear from people with first hand experience since I have never had an ILP before. This is really guest blog material. Hint, hint. ;p
After paying for 6 years and the value of your ILP is only 40% of what you have paid? Sounds like a bad deal from an investment perspective. Even if we throw in the insurance perspective, it sounds expensive since for 60% of what you have paid in 6 years, I guess you could possibly get an even higher coverage if you had bought term.
Yes, I keep hearing from people about this magical 20 years and how the ILP would break even. Well, I hope it happens for people with ILPs. I certainly do not wish anyone ill.
I didn't know you were ill. I hope you have recovered and are healthy again. You are still very young and promising. ;)
Hi AK,
My illness cannot be cured. :(
Since I dump about $150 per month. Assuming 30 years, it will be $54k. Not a lot actually hence I just keep it like a term plan and disregard the investment portion and see if 20 years later really break even. Haha! But I bet the agent already left the job by 20 years later.
Haha, did you see my para 3 above? THATS ANOTHER BAD POINT OF ILP. Some sort like a double deduction. Not many people is aware of this but I think I should bring up for other people to know.
Nah, nowaday I too lazy to blog but you can put it as example if you wish to blog about ilp again :)
Which term plan are u using? Saf term insurance?
Hi OT,
I am so sorry to hear that. Some long term illness, I suppose. Life is unpredictable, really. Well, I guess you have a good H&S to take care of costs. If it is a CI, I hope you had CI plans. :(
I bought my term life policy from a friend who is an AXA agent. I know NTUC iTerm or the SAF Group Term Life Insurance are a bit cheaper but I want to support my friend and I am sure he will help take care of things if I should leave this world a bit earlier. Life is unpredictable, right?
I don't know if you have sufficient life insurance. If you are thinking of increasing your life insurance coverage, ask for term life insurance quotations with the necessary medical declarations. :)
Buy term & invest the rest sounds great. Unfortunately many will buy term insurance & spend the rest. ILP plans have its merits & it's beneficial thru dollar cost average will give the policyholder a decent return (that will beat inflation rate) over 10-20 years. This is provided the portfolio is at 70% equity & the rest in bonds. Need to go thru at least 1-2 recessions & by using dollar cost average, will make a decent return when the economy is booming.
Hi NKT,
I think you are the first person I have come across who actually guarantees that ILPs will beat inflation in the long run. Most people will say that past results do not guarantee future performance. ;p
However, you are right to say that if people buy term and spend the rest, they will not be any better off financially. ;)
"ILP has no GUARANTEE payout. In worst case scenario, you might even loss money due to the poor fund performance. You will also incur losses if you surrender the policy too early. The market term of breakeven is always 7 years. How does my ILP fund perform so far after 11 years? It is simply BORING.
"The fund house is required to project the return based on 5% and 9% during my time. I think the projected return percentage was revised lower by MAS lately.
"I just checked my fund surrender value today; it is S$26,135.43. Do I meet the projected return?
"Well, after 11 years of payment, their projected 5% is S$25,000 and 9% is S$31,800. It seems like my fund performance hit the high 5%. It sounds OK but is this really the case?
The true amount I put it in is S$203.26 x 12 months x 11 years = S$26,830.32. Where is the 5% gain here?
"If I sold it today and get back S$26,135.43. I will still incur a loss of S$694.89 after 11 years."
Read full story:
My ILP by Jack James.
"What is going on here? Again, bulk of the payment goes to their management fees? This is very discouraging.
"My ILP paying 11 years is still in loss, not earning a single cent.
Even my Endowment plan paying 10 years is also in loss, not earning a single cent.
"Something must be really wrong somewhere. What is the point to have all these policies in the market? To make the insurance agents richer? I definitely will not need this pathetic insurance coverage of S$28,000 from the endowment plan, unlike ILP has the coverage up to S$100,000, which is a consolidation prize.
"What should I do? I will continue to pay and observe the policy value in yearly manner to make sure it is close enough to the projected surrender value. Hopefully, yeah, a big fat hope, that the surrender value will hit the projected surrender value by the age 47. I only can tell you 12 years later from now.
"You know what, many people are just like me and you, we constantly receiving annual letter from the insurance agency, happy announcing to you that no matter how volatile is the market, we still keep our promises, giving you the interest coupon as declared, hitting the mark, etc. But again, if you sit down, and crunch in the value that you have put into the insurance policies so far and check the policy surrender value as for today date, then, you will know if all these are true. They might be correct that they fulfil their promises, projected return, but again, there are just way too many other hidden charges behind.
"That is why you now should appreciate why government emphasizes so much on the CPF top up, planning well within the CPF account. If you always think you can beat the CPF interest rate, go ahead and make sure you do your math right. It is not the case all the time."
Read full story:
Endowment Plan" by Jack James.
"You know what, you don’t surrender whole life insurance.
"This is my personal philosophy. So, for curiosity, how much I have put in so far?
"S$3,243 x 9 years = S$29,187 and yet if I surrender now, I still can get S$24,386.97. That's a lot of money still!
"Hey, seriously, honestly, this is too good to be true. This is pure whole life insurance! Unlike term insurance, you get ZERO, of course with the same amount, you can get much larger insurance coverage, I know.
"So, what’s my next strategy?
"I have shared many times and do not mind to repeat again.
"Whole life insurance is for the next generation. Only if I fall into an extreme dire situation, then, I will force to choose to surrender (also at very later age), maybe say age 65."
Somewhat a rose-tinted glasses article, I feel, but read the full story and decide for yourself:
Wholelife Insurance by Jack James.
Why rose tinted? Care to offer your views? I love to hear from more angles.
Hi Ray,
I have suggested to the writer that he could have included a comparison with term life insurance and the difference in the premiums payable. I have also suggested that the surrender value would be lower if we remove the non-guaranteed portion.
I am still of the opinion that we need insurance but we do not want to overpay for insurance. If I had known this in my younger days, I would not have bought whole life insurance or endowment products when I was in NS and as a fresh graduate.
However, if our motivation is for something more than insurance, then, of course, there would be different stories. In this instance, the writer is thinking of using wholelife policies as a wealth building tool for his son, for example.
I believe that insurance should be purchased for the sake of insurance needs. That way, the cost of insurance is kept to the minimum. I am sure that for the same insured value, the writer would have saved a bundle by opting for term life insurance. I know the savings could be as much as 80% or 90% in some instances.
Assuming the savings were 80%, then, in this example, over a 9 years period, the writer would have saved $23,349 during that time. If he had invested the savings in equities for a 5% dividend yield, he would have done better, I reckon.
Agents always say 5% to 9% better than putting in banks. But we didn't know abt the admin fees that's resulting in losses! I got a colleague who said he is getting a Tokyo marine education fund that guarantees profit. Pay for 15 years and get back money in 20 years. I'm going to find out more and maybe share here.
Here it is: Tokyo marine education plan. Pay 700+ a month for 10 years. Total premium paid is 86k. Guarantee 100k in 20+ years time, divided into 3 payouts. Plus some non guaranteed bonus payout. Sounds like a sure win. Too good to be true? Ak care to comment?
Hi Ray,
Frankly, if any insurance agent tells me that a wholelife or endowment policy is able to generate 5% to 9% annually in returns, I will walk away. It is, quite simply, impossible. 4% would already be quite a feat.
Buying term life insurance (for the same insured value) and socking the savings monthly into an ETF through the POSB Invest Saver or OCBC BCIP could yield higher returns. ;p
Hi Ray,
Paid $86K at the end of the 10th year, get back $100K after 20+ years? Is that 21 or 29 years? Whichever it is, the guaranteed gain is $14,000? That is miserable.
$86K even if it were to make 2% a year, it would be $1,720. Over a 10 year period, based on simple interest, that means a total return of $17,200. We can get this simply by putting the money in a Singapore Savings Bond. Guaranteed by the government of Singapore.
See:
Singapore Savings Bonds (Part 4).
I knew we can count on you to break down so clearly. Thanks!
Hi AK71,
How about your opinion on Wholelife plan vs term plan? Just curious after reading some of your comments. Appreciate if i could hear from you. Great insights tho im new to all these investment stuff.
Hi Ak,
Whats your opinion on whole life plan vs term plan? As in to buy term plan and to invest the amount. Whole life can be quite costly in the long run depending on which age it is locked in. Would like to hear some of your opinions:). Started reading your blog and enjoying much of the investments intake tho im new.
Hi Daniel,
Just like in ILPs, Whole Life has an investment component. The difference is that the insurer is responsible for investing the money while in ILPs, the policy holder is the one with this responsibility (i.e. deciding which fund to invest in). So, they are both a mix of insurance and investment.
I believe that we should not mix insurance and investment. Buy insurance for the sake of being insured. It is more cost effective. Buy term and invest the rest. :)
Hi AK71,
Thanks for the article :) Very helpful.
Can i check with you on how you do the calculations though? I am trying to figure it out so that i can compute my own when being proposed of such products.
If I am receiving 5% yield every year, how did you manage to get the figures of $1500 in Yr 3, $2000 in Yr 4 and so on?
Shouldnt it be the below if it is 5% yield?
Yr 1: 500 Investment: 10000
Yr 2: 525 Investment: 10500
Yr 3: 551.25 Investment: 11025
And so on.
Thanks for your advice!!
Hi Nelson,
We are looking at a $10,000 yearly investment and not a $10,000 one off investment.
Using the $10,000 yearly savings from not buying an ILP, invest the money yearly.
;)
Thank you for preaching the gospel of 'buy term, invest the rest' here. It is like a never ending war as long as people are still taking advice from forum threads started by insurance agents who are still recommending whole life policies as the ideal kind of insurance to go for. Haiz.
Hi LTWFY,
I am not preaching anything in my blog.
I am just talking to myself. -.-"
B Tang said...
A middle-ground option (which I used) was to reduce the coverage of the ILP which reduced the premiums paid.
The premium savings can be used to purchase more efficient insurance coverage policies to complement the ILP coverage reduction.
---------------------
Blogger AK said...
Hi Tang,
For me, if a product is defective, I throw it out totally.
An ILP is an expensive insurance tool and a lousy investment tool.
Aiyo. I understand that being an FC is not an easy job. But, FC should work with some sense of responsibility as you are handling other people's monies. I was approached by an AIA agent at a roadshow at a shopping mall today. He said he has an investment product that can provide guaranteed 5% returns annually and if i was interested.
5%!!! More than SA/MA sia!!! Investment got guaranteed one meh?
I said no.
Hi HL,
Could be a case of blatant misrepresentation and I am inclined to believe that it is.
Just a shade shy of fraud.
Tsk, tsk. Terrible.
Nobody cares more about our money than we do. ;)
Speaking of AIA agent, an encounter really left a bad taste in my mouth. I was bringing my kid to a children's show at Waterway Point over the weekend. Beside the show was a booth setup by AIA.
An agent approached me and said that they are the main sponsor for the show and asked if we could sit down for 2 minutes for a talk. I rejected and proceed with the show. On the backdrop of the show, it states Pigeon as the main sponsor.
I was absolutely disgusted by the lie that the agent made. It shows how low certain agents would stood to make a sales.
Hi betta man,
Sharks infested waters are scary! -.-"
AIA agents infested pool is scarier? ;p
Hi AK,
I was the one who asked about what to do with ILP that have been in place for almost 30 years during that Meet AK session on 10 May. Thank you for the advice anyway. The ILP then was sold as a "whole-life" kind of policy then and with unit trusts as the cash value. This company launched the first ILP back in early 90s and everything looks "attractive" as it was also in the midst of the "ah kong" issues of the Singtel special shares. The stock market boom (~100%) till the AFC. A $1 unit trust became $2+ during that period. At one stage, the presented cash value (on quote) was based on a projection of up to 12% pa..... of course non-guarantee.
Anyway, to cut long story short, the fund performance prob performed around 4.8% compounded over 30 years period (based on $1 to $4 prices of unit). However the account holder still need to absorb the bid-offer spread during the procurement and sales of units for mortality charges. By senior citizen age, very little or no units would be added in the cash value per year. I suppose when premium is not enough, the mortality charges will be taken from the cash value and will spiral down to zero as it is scary to think of charges incur at say age 80.
Moral of the story, if it was a mistake made then, try to liquidate as early as possible and go with "buy term and invest the rest" strategy. However, if it is too late like incurring chronic illness. Will have to either keep policy and sell maximum units available and invest the rest for income dividend stocks to help pay the insurance premium.
Hey, I just revived a very old topic of yours as I started actively reading your blocks about 3+ years ago.
Hi Francis,
ILP is just a terrible way to sell insurance to regular folks who are not financially savvy.
I have quite a number of blogs sharing readers' bad experience with ILPs.
Very good we had a chance to chat on Wednesday. :D
Yes, please make sure you can get critical illness coverage to replace your ILP/CI bundled policy first.
Once your new CI policies are in force, you can surrender your ILP/CI policy with peace of mind.
We really need CI coverage as we are not growing younger. -.-"
Getting a few term CI plans each covering different number of years is a good way to make sure we get more coverage in our economically more productive years.
This was what I did and my coverage will start reducing once I turn 55.
With the reducing coverage, the insurance premium payable will also reduce with age.
Hope everything works out nicely for you. :)
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