10 years of Investment Linked Policy (ILP) and now i am stuck. Let me share with you what is the problems ILP and what are my thoughts of it.
Insurance Coverage + Investment
ILP plan has both insurance coverage AND investment. Sounds good right? You pay only 1 premium and you get both, killing 2 birds with 1 stone? The issue with it is if your investment ripe and you are ready to cash out, what about your insurance coverage? You are essentially giving up your insurance coverage. When you have decided to cash out the investment and terminate the plan, are you going to re-look into another term plan for insurance coverage? This way, you exposed yourself to no more coverage for your pre-existing conditions from the time you buy into the new term plan and potentially a higher premium for term plan at a older age.
Regular-Premium Investment and its charges
On the first few years of the ILP, a large portion of the funds goes to the agent’s commission. Following a steady 5% charge for every transaction. Regular-premium means that you are paying your ILP every month, hence, making a transaction every month, This means that you are paying a 5% charge every month for transaction. This is no different from buying a stock from the open market where there is a fee charge every time you make a transaction. The insurance company have nothing to lose in this plan. The customer bares all the risk if the fund price falls, however, the company gains a secured guarantee 5% charge for helping you to make that transaction.
In additional, they designed the policy such that they to make you invest all your premium into the fund units, hence paying the 5% charge, then they sell your fund units to pay for the insurance. This type of investment is far worst than a savings in a bank or endowment plan with a 5% charge every month.
High Risk + Blind Investment
ILP is a blind investment. What I mean is, you are buying into the funds on a regular basis regardless if the fund is raising or falling. Yes, experts gave it a very sophisticated term, dollar-cost averaging. If you have no time to monitor what you are investing, then you should jolly well put the money into a fixed deposit or somewhere with lower interest and guaranteed returns. There is no free lunch. If you are too lazy to monitor your investment, you will have to pay a hefty fee for someone to do it for you. At the end of the day, are you still earning after paying the hefty fees?
The fund price is expected to raise and fall every day. So says the experts, every 10 years, there is an expected market clash and the fund price stumble and your ILP cash value instantly dropped. How is this different from buying stock from the open market. It is a high risk game played by a blind player.
10 years of Investment Linked Policy (ILP) and now i am stuck.
So, 10 years into the ILP, and I have not breakeven, I only have myself to blame. Given all the insurance coverage fees and charges, my investment returns is lower than my capital invested. If I would to put my money in a bank or buy into singapore bonds, i would have capital guaranteed and some compounding interest. I still remember when ILP was being sold to me, the insurance agent’s drawing of the ILP where the cash value starts to raise from year 1 and it grows over the years, what was missing in that diagram was my capital invested is another curve above it.
What should I do now?
A) Terminate my ILP and treat the loses from my investment the last 10 years is used to pay my insurance coverage for a 10 years Term Plan. Buy another Term Plan and make another wiser investment.
B) Continue to stay put and monitor the fund price in hope that I can breakeven and terminate the plan.
Either way, it a termination of the plan. It’s about the timing to minimize the loses.
Reference link to Investment-Linked Insurance from Money Sense