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Reader regrets ILP but what to do?

Monday, August 14, 2017

I was introduced by my colleague to your blog and only started to read it last night. Many useful tips indeed and I really regret not reading it earlier. 

I am single and 47 this year. I bought an ILP from Prudential for an assured sum of $100,000 when I was 27 for an annual premium of $2,000 for death, PD and CI. My surrender value now is about $40,000

Shall I follow your blog advice to terminate it and purchase a term policy till 62? 

Currently almost half of my annual premiums is used to cover the cost and will escalate once I enter into my 50s

Any advice would be greatly appreciated.

What is the purpose of insurance?

(Alamak, paid $2,000 a year for 21 years and now can get back only about $40,000?)
Since you have read my blog on the subject, you know why we should not mix insurance with investment. I wouldn't touch an ILP even with a five feet pole.

We need life insurance if we have dependents. If we no longer have dependents, we don't need life insurance. 

Even if we do not have dependents, if we do not have a meaningful level of passive income, we still need coverage for CI because we might not be able to work for a long time. 

So, before you terminate your ILP, find out first if you are still able to get term life and CI coverage. 

If that option is still open to you, then, terminate the ILP. You will be saving a lot of money to get the same level of coverage.

Related posts:
1. How many 20 years do we have?
2. Without CI coverage?


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.

AK71 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.

AK71 said...

See also:
Free investment linked policy or term life policy?

AK71 said...

From my FB wall:

Raymond Ng:
A veteran in insurance once told me that the benchmark of deduction should be <20%.

For this case, premium $2K and paid for 20 yrs; base on 3.75% yield, the maturity value shall be $63,146. Minus surrender value of $40K, the effect of deduction is $23,146 or 36.7%.

This is way above 20% benchmark and thus is a poor 'investment'.

laurence said...

This is terrible. Yet just hours ago, Prudential reported a mind-boggling stratospheric jump in profits:

"Prudential records 109% YoY profit growth at $1.5b for the first half of the year."

AK71 said...

Hi Laurence,

Chinese saying from my primary school days:


LOL. ;)

Clueless said...

Hi AK,

I was almost prepared to surrender my ILP to purchase a new CI policy, but after doing some checks I found out that the cost of buying a CI insurance is similar to the cost of an ILP for the same coverage quantum.
So I am now left wondering if we use ILP as CI coverage, and not so much of an investment vehicle, will it still have its merits.
Lol, consoling myself?

laurence said...

The case in your blog sounded more like 我吃香蕉,你付钱.

AK71 said...

Hi Clueless,

Unless you are pretty old (think 50 years or older), it is impossible for term life and CI to be same price or more expensive than an ILP offering the same coverage. At least I have not come across such a case.

If you are a senior citizen, you should also question if you still want to keep paying for an ILP.

AK71 said...

Hi Laurence,

You are right! Ouch! ;p

Spur said...

Everything depends on whether he is still insurable as standard life.

A quick online quote for $100K death, TPD & CI from 47 till 62 is $712 per annum.

If he is able to qualify for Mindef or MHA group insurance then it'll be just $379 per year. But the CI pricing increases with age bands. Above 55 yrs old, it becomes more expensive than the fixed term policy.

Some people are leery of group insurance due to pro-ration factors for certain mass casualty events. But the Mindef/MHA T&C not too bad --- pro-ration applies only for mass casualty in war or terrorism (yeah I know damn ironic for something called Mindef / MHA insurance hahaha!!!).

Oh & before he cancels his ILP, gotta make sure his replacement insurance is signed, sealed, delivered & premium paid. :)

AK71 said...

Hi Spur,

Good points. :)

I am sure he will pay lesser and still be able to get the same coverage, everything else being equal. I have yet to see anyone converting from ILP to term life and CI who had to pay more for the same coverage.

DL said...

Looking at the Term Insurance at
The 5 year renewable premium is much cheaper than to age 65.
What is your thoughts on the decision criteria?

Clueless said...

Yes, Mindef/MHA group insurance is a viable option. Signed up for it while I was contemplating to surrender my ILP. But unfortunately, at his age the reader can no longer qualify.

AK shifu, my coverage under ILP is 300K death, TPD & CI supposedly for life at more than 3K per annum. I agree premium for term is relatively inexpensive but seems not the case for CI. Mindef/MHA is the only reasonably priced option I could find but as Spur mentioned, it becomes much more expensive above 55 and does not cover for life.

Maybe I just haven't found the right CI plan.

AK71 said...

Hi DL,

If it is cheaper and you get the same coverage (i.e. no monkey business), I would go with that.

Sometimes, I might decide to pay a bit more for something because of reasons such as better service or some perks which I find sensible but if everything is the same, I would go with the lower price option. :)

AK71 said...

Hi Clueless,

Contrary to popular belief, I do not think we need CI coverage for life. ;p

See this blog:
Without CI coverage?

Always question the purpose.

AK71 said...

Hi DL,

You might also want to find out how much it would cost to renew 5 years later for another 5 years. It could be more expensive then. If this is the case, getting a 5 years renewable only makes sense if you only need coverage for 5 years. ;)

laurence said...

A very insightful revelation about the insurance world which I feel everyone should read and become wiser:

How Much Commissions Do Insurance Agents Earn?

AK71 said...

Hi Laurence,

I think it is also fair to say that everyone must make a living.

As long as insurance agents do not misrepresent and place their clients' interest first, they deserve their pay. :)

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