Friday, January 20, 2006

Beware about the distribution charges under ILP

Beware about the distribution charges, when you buy a regular premuim investment linked product (ILP).

Some products take away nearly 2 years of your savings. If you annual savings is $3,000, you stand to lose up to $6,000. This is used to pay commission to the insurance agent.

If you buy the ILP from NTUC Income, 100% of your savings is invested from the first month.

What is the catch?

If you terminate your policy within 20 years, you are required to pay $40 a year for the remaining period. If you terminate on the 10th year, you have to pay a back end charge of $40 X 10 = $400. That is all.

This is, of course, much lower than $6,000.

The name of the ILP from NTUC Income is called Ideal plan (code: ID5). And here is another tip: you can save as much as you wish, say $500 a month, and you still pay the same back end charge. ID5 makes a lot of sense, if you save a large monthly sum.


Ronin said...

Dear Mr Tan,

I believe there are other charges not mentioned. For eg, 15% annual advisory fee for first years and 3.5% bid/asked spread.

Having said the above, NTUC Income is still by far the fairest insurer in terms of product pricing. Keep it up!

The Ronin

jotting down memories said...

Dear Mr Tan,

What if you compare ILP to unit trusts which don't have the penalty charges of $40?


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