Financial: The useless ILP, & how to go about terminating it

[pewtercatfella]

Have you previously bought for yourself or your loved ones investment-linked policies (ILPs)? Well, on the surface such instruments put forth a rather enticing proposition: secure substantial insurance coverage, at the same time have funds funneled into unit trusts to grow your nest egg. But the somewhat fuzzy manner in which things actually "work" behind the scenes typically means you the client will in all likelihood be shortchanged despite your best efforts to be discerning. It shouldn't come as a surprise; after all, actuarial science is a notoriously sneaky slimeball exploited to benefit an insurer's bottom line first and foremost.

Let's discuss a real life case (yes it happened!) in which an individual in his thirties who until late September 2017 has been contributing a not quite insignificant monthly premium of $215.66 towards a $200,000 sum assured ILP offered by a well-known international insurer. Having done so for the past eight years plus since June 2009 (which therefore spans a duration of 12 × 8 + 3 = 99 months), he would have forked out a total of $21350.34. The bloke finally came to his senses and decided to cut his losses after much deliberation, so he surrendered his policy and received a cheque for an amount slightly less than 16k. How much did he throw down the drain altogether? A whopping five thousand dollars plus change! Utterly shocked? You should be. In a nutshell, here are the main reasons why the purchaser of an ILP will almost surely be at the losing end of the deal:

Your premiums are used to pay for a lot of crap other than for actual investment purposes

In the initial years, chunks from your premiums are taken to cover distribution costs, with the remaining funds (obviously no longer a 100%) being used to actually invest in unit trusts sans typical 5% sales charges. And then there are insurance charges incurred alongside policy fees which are deducted by selling away units on a monthly or annual basis. As one ages, insurance charges soar, not in a linear fashion mind you, but in an exponential one, which means the scenario where the units held in your policy end up being completely sold away just to account for these costs can arise, and you may even have to fork out extra monies to top up for the outstanding shortfall. In a nutshell, you could become a very unhappy holder of a policy with zero cash value, and still have to burn cash for continued insurance coverage in your twilight years.

More at Financial: The useless ILP, and how to go about terminating it

[Lala81]

That's quite an accurate estimate.

 

my wife held the ILP for about the same amount of time and lost that amount as well. but we just treat it as an expensive lesson/insurance for those years.

 

Edited October 9, 2017 by Lala81

[Bacteria83]

Be it ILP, life insurance or term plan. The main priority should be coverage. If you took up an ILP for investment purpose, you definetly gotten the wrong plan as there are more suitable plans available.

 

ILP is not a bad plan, just that it do not meet what you need.

[Krieger]

For ILPs, I suppose most who bought it knows its not for mainly for investing. It consist of both coverage and little of investing. Its best to get it when you are young as the break even years will be around 7-10 (with the least return scenario).

 

I go in with the knowledge that I will make a loss of 4 % at the end of 10 years, but with a coverage of 90 times the amount of what I had paid (guaranteed). This is to give something extra to my family in case I die or suffer from disability. 

 

Buy ILPs from firms which provide transparent fees and distribution cost. Best is those with 100% single fund. (example Pacific Fund)

 

 

So in short, its a form of high level coverage for those who wants it, but of cos with a price. Its not for everyone. 

 

 

 

 

[Mustank]

Knnbccb!!!!!!

Got time later then I come in!!!!!

[Mustank]

Tmd!!!!! 18 years ilp with prudential lost 7k

Should have just bought saf group insurance then put money in cpf

I am cancelling my sons ilps and move them to saf insurance

Then invest in their cpf

The only ones I am going to leave untouched are the medical insurance

If saf got medical insurance, Lim peh jitao cancel the prudential ones

[Count-Bracula]

  On 10/10/2017 at 12:09 AM, Mustank said:

Tmd!!!!! 18 years ilp with prudential lost 7k

Should have just bought saf group insurance then put money in cpf

I am cancelling my sons ilps and move them to saf insurance

Then invest in their cpf

The only ones I am going to leave untouched are the medical insurance

If saf got medical insurance, Lim peh jitao cancel the prudential ones

SAF has medical insurance for NSFs right? My son's insurance agent say one.

[Mustank]

  On 10/10/2017 at 12:22 AM, Count-Bracula said:

SAF has medical insurance for NSFs right? My son's insurance agent say one.

I rod Liao lah

I think is the critical illness rider not the hospitalization insurance

[Kusje]

  On 10/9/2017 at 11:56 AM, Bacteria83 said:

Be it ILP, life insurance or term plan. The main priority should be coverage. If you took up an ILP for investment purpose, you definetly gotten the wrong plan as there are more suitable plans available.

 

ILP is not a bad plan, just that it do not meet what you need.

 

If you're buying an ILP and not buying it for investment purposes, then why buy it? There are other pure insurance plans out in the market. The problem with ILPs is that they are investment plans masquerading as insurance.

[Kusje]

  On 10/9/2017 at 2:51 PM, Krieger said:

For ILPs, I suppose most who bought it knows its not for mainly for investing. It consist of both coverage and little of investing. Its best to get it when you are young as the break even years will be around 7-10 (with the least return scenario).

 

I go in with the knowledge that I will make a loss of 4 % at the end of 10 years, but with a coverage of 90 times the amount of what I had paid (guaranteed). This is to give something extra to my family in case I die or suffer from disability. 

 

Buy ILPs from firms which provide transparent fees and distribution cost. Best is those with 100% single fund. (example Pacific Fund)

 

 

So in short, its a form of high level coverage for those who wants it, but of cos with a price. Its not for everyone. 

 

Sounds good up front.

 

But have you calculated how much a pure insurance plan would have cost you? You can save/invest the remainder on your own.

[Count-Bracula]

  On 10/10/2017 at 12:24 AM, Mustank said:

I rod Liao lah

I think is the critical illness rider not the hospitalization insurance

[mersaylee]

I'm very oriental...only trust 老字号 - 大东方, 大华。

[Friendstar]

  On 10/9/2017 at 11:03 AM, pewtercatfella said:

Have you previously bought for yourself or your loved ones investment-linked policies (ILPs)? Well, on the surface such instruments put forth a rather enticing proposition: secure substantial insurance coverage, at the same time have funds funneled into unit trusts to grow your nest egg. But the somewhat fuzzy manner in which things actually "work" behind the scenes typically means you the client will in all likelihood be shortchanged despite your best efforts to be discerning. It shouldn't come as a surprise; after all, actuarial science is a notoriously sneaky slimeball exploited to benefit an insurer's bottom line first and foremost.

 

Let's discuss a real life case (yes it happened!) in which an individual in his thirties who until late September 2017 has been contributing a not quite insignificant monthly premium of $215.66 towards a $200,000 sum assured ILP offered by a well-known international insurer. Having done so for the past eight years plus since June 2009 (which therefore spans a duration of 12 Ã 8 + 3 = 99 months), he would have forked out a total of $21350.34. The bloke finally came to his senses and decided to cut his losses after much deliberation, so he surrendered his policy and received a cheque for an amount slightly less than 16k. How much did he throw down the drain altogether? A whopping five thousand dollars plus change! Utterly shocked? You should be. In a nutshell, here are the main reasons why the purchaser of an ILP will almost surely be at the losing end of the deal:

 

Your premiums are used to pay for a lot of crap other than for actual investment purposes

 

In the initial years, chunks from your premiums are taken to cover distribution costs, with the remaining funds (obviously no longer a 100%) being used to actually invest in unit trusts sans typical 5% sales charges. And then there are insurance charges incurred alongside policy fees which are deducted by selling away units on a monthly or annual basis. As one ages, insurance charges soar, not in a linear fashion mind you, but in an exponential one, which means the scenario where the units held in your policy end up being completely sold away just to account for these costs can arise, and you may even have to fork out extra monies to top up for the outstanding shortfall. In a nutshell, you could become a very unhappy holder of a policy with zero cash value, and still have to burn cash for continued insurance coverage in your twilight years.

 

More at Financial: The useless ILP, and how to go about terminating it

ILP suck. I agree

 

But many will also know that in 8 years u won't break even.

  On 10/10/2017 at 12:28 AM, Kusje said:

If you're buying an ILP and not buying it for investment purposes, then why buy it? There are other pure insurance plans out in the market. The problem with ILPs is that they are investment plans masquerading as insurance.

I don't like ILP either.

 

But it fulfills the need of some.

 

Just don't overbuy ILP.

[Kusje]

  On 10/10/2017 at 1:19 AM, Friendstar said:

ILP suck. I agree

 

But many will also know that in 8 years u won't break even.

I don't like ILP either.

 

But it fulfills the need of some.

 

Just don't overbuy ILP.

 

What are those needs? Can share? Is it for forced savings?

 

I can never understand.

Edited October 10, 2017 by Kusje

[Sdf4786k]

oh.. din know that as well.

 

Was always under the impression that its like two for 1. An enhanced policy that sounded quite positive

 

 

[Superjonjon]

  On 10/10/2017 at 1:28 AM, Sdf4786k said:

oh.. din know that as well.

 

Was always under the impression that its like two for 1. An enhanced policy that sounded quite positive

It is 2 for 1 but it is neither great for insurance nor is it great for investment.

 

If you want pure insurance, a term insurance is better. Higher coverage and cheaper.

If you want pure investment, go buy shares or unit trust is better. More control and less distribution costs.

 

Only benefit of ILP is that you dont have to research and just trust the FA hence the higher distribution costs.

[Kusje]

  On 10/10/2017 at 1:35 AM, JonathanWenJianNg said:

It is 2 for 1 but it is neither great for insurance nor is it great for investment.

 

If you want pure insurance, a term insurance is better. Higher coverage and cheaper.

If you want pure investment, go buy shares or unit trust is better. More control and less distribution costs.

 

Only benefit of ILP is that you dont have to research and just trust the FA hence the higher distribution costs.

 

How is this a benefit? It's not as if the FA is the one helping you invest. He just throws it to a fund manager to invest on your behalf.

[Enye]

well there are many people who don't bother with or intimidated by the notion of financial planning but choose to believe in agents who are their close friends/relatives that buying ilps and churning them will ensure they would have a good retirement after 30 years or their dependents will have a huge sum of money if anything happened to them

 

agents serve the needs of these people well

 

  

Edited October 10, 2017 by Enye