NTUC Income allows a loan to be taken against our ILP plan. Other insurers do not allow this option. They insist that the policyholder should surrender the units, if they wish to withdraw cash.
Why?
Perhaps, the other insurer wish the policyholder to surrender, and to re-invest at a later date. The policyholder has to pay the spread of 5% again. It will cost 5% to the policyholder
NTUC Income's practice is more favourable to the policyholder. Here are the terms of our loan on ILP policy:
1. We allow a loan of up to 50% of the cash value.
2. We will ask the policyholder to make partial payment, if the loan reaches 70% of the cash value, so that there is always a 30% margin. The repayment can be done by partial surrender of the units.
3. Interest rate is at the same rate as for traditional policy, ie 5.5% per annum.
What's the difference?
ReplyDeleteWhen they withdraw and subsequently re-invest, they are charged the 5% bid-offer spread price.
When they take a loan, they are charged 5.5% interest rate.
Why then is NTUC more favourable???????????????
Hi --
ReplyDeleteYes, Justin is correct that the sales charge is 5 per cent and the loan rate is 5.5 per cent. They look to be about the same but there are some differences.
With the loan you still hold the ILP and continue to earn its return. Once you sell, you no longer earn a return from the ILP.
Also, the loan costs 5.5 per cent per year. It is less than 5.5 per cent if you hold your loan for less than one year.
The sales charge, however, is 5 per cent regardless of how long you hold the ILP. (The sales charge may be less for NTUC Income ILPs. I am not sure.)
Compared to other sources of financing, 5.5 per cent interest is not too bad. It is more than a home loan but cheaper than other loans like personal loans, lines of credit, and credit card loans.
Of course, it is always best to save your money and be a lender, not a borrower!
I hope that Justin Lim is making an honest mistake in giving his opinion.
ReplyDeleteThe interest rate on the loan is 5.5 % per annum. If you borrow for less than 1 year, you pay less tahn 5.5%.
Your investment will continue to earn a return. If it earns more than 5.5%, you are better off to continue to be invested, even after paying off the interest.
I know that many insurance agents from competitors read my blog. Some of them deliberately give their misleading opinion, to confuse the public.
Agree with Larry totally, however my opinion would be "Neither a Lender nor a Borrower". Cheers!
ReplyDeleteAs for Kim Lian, we give opinion based on our understanding. If what we write is illogical and is misleading, you as the owner, can choose to ignore or even delet our post. Don't have to be suspicious of those who writes unfavourable comments.
Comments / Personal Views from anyone, even your competitors, are meant as information to others to see and be a judge for themselves... If this is a "one-way" traffic blog, do say so and I will keep my mouth shut...!
Would you have written anything bad / adverse about NTUC's policies???
I do not believe I have made a mistake...!!!! Kim Lian has given you only 1 side of the coin:
ReplyDeleteBorrow less than 1 yr, you pay less than 5.5%. Your investment continues to earn a return.
The other side of the coin:
Borrow more than 1 yr and you pay a compounded interest of 5.5% (a total of 11.3% in 2 years). In that year, if the investment drops, you will be worse off. NO ONE can guarentee a positive return year on year.
Having said all these, I think it is good to have such an option (to borrow against the policy). This will given clients a choice, to borrow against the policy or to sell off the units.
If they need the money for a short period of time (few months or so) and the outlook of the market looks rosy, this will be a fantastic option to have.