REQUEST FOR ADVICE
Hi, Tan.
Saw your blog. Just thinking you could be the right person to give me a piece of advice on insurance and saving for future.
I bought an AIA Investment Link Plan that has life coverage of $100k, critical illness of $50k and medical plan.
The annual premium is $1,800 and I took up AIA managed fund. I am not a person who can take risk and feel uncomfortable seeing unpredictable return in future.
From your point of view, is investment link plan a good choice of saving + insurance with tight budget? Do I have to pay until the policy matured? How could future economic performance affect my insurance plan? Is it adviseable to top-up or ad-hoc now since the unit price is still low?
I have consulted 2 AIA insurance agents but their only give minimum words on this. I sincerely hope that you can help me on this decision making as on whether I should keep the 3-year-old policy or surrender it for a traditional insurance.
R
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Dear R
Please read this FAQ on the Ideal plan (which is similar to the investment plan that you have bought from AIA):
FAQ on Ideal Plan
Here is another FAQ that explains about investment risk (it applies to the Ideal plan as well):
FAQ on Investment Risk
Generally, if you are investing for the long term, an investment fund is suitable. You should choose a large, well diversified fund to minimise the risk of poor performance of certain investments. If you invest for 10 years or longer, you will average out the good and bad years and get an attractive return.
Looking at your AIA policy, you should consider two points:
- what is the annual charge on the fund?
- what is the upfront charge to pay commission to the agent?
These two charges can take away a large part of your return. It can amount to several tens of thousand of dollars. There is an example in my FAQ.
I will ask my product specialist to contact you, in case you need further asssitance.
Tan Kin Lian
R,
ReplyDeleteIt will be insane to give up one Investment Linked Plan ("ILP") for another ILP.
If an adviser is going to ask you to switch, I think it is better for you to check with LIA before making any decision.
There are three distinct risks you must guard against; they are business risk, valuation risk, and force of sale risk.Investment Risk
ReplyDeleteI agree with Justin Lim. It is always not good for policyholders to surrender their Investment Linked Plans (ILP).
ReplyDeleteHowever, you should cancel it and buy another plan, except ILP, like whole life and endowment plan which is better than your existing one if you are still healthy and you bought the ILP for not long ago.
When you surrender it, you will definately lose some, if not most, of your money. But, if you don't like your current ILP and keep paying premium regularly, you will definately lose even more when you decide to surrender it in the future.
In fact, ILP is a good plan. In Malaysia, ILP is very affordable for young people. The premium rate for ILP (with riders) is fixed. However, this will happen only if the current market is performing well. If the market is performing well, then you may need to pay extra premium in the future in order to avoid your ILP from lapse. So, there is a risk you must bear if you buy ILP. The premium rates for critical illness and medical card are not guaranteed to be fixed forever.
If I were you, I will not buy ILP because policyholders are the ones who bear the risk. I prefer whole life and endowment plans because the risk is borne by the insurance company, not me. Even though the premium rate is not fixed if I add riders attaching to it, my protection is guaranteed to be there when I need it the most. The premium rate is not fixed because the premium rates for riders like personal accident, critical illness and especially medical card are not guaranteed to be fixed forever. Their, except medical card, premiums are likely to remain the same in the future but not guaranteed. I think that there is no such thing as a free lunch in the world. So, I can accept the increase in premium in the future.
My suggestion is that we should buy ILP without any riders. Then, we buy the riders as standalone plans. By using this strategy, our ILP will not lapse in the future.
Please correct me if I am wrong. Thanks...