Avoid high front end charge

Hi Mr Tan,

Thanks for sharing your insights in this blog. Your views are valuable for a young man.

I'll wish to seek your thoughts in recommending ILPs to your visitors. For one, I think that they are expensive. I bought one whole life ILP this year, and it has a distribution cost of 20 months premium paid over 3 years.

Should I opt out of the policy due to the high cost? Moreover, the funds to choose from are very limited as compared to what's available on the market.

I'm doing my own investing for my retirement fund, and will think that with persevered learning, I will gain more doing my own investing (ie buy term and invest the rest of my savings).

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REPLY:

I agree that a front end charge of 20 months is far too high. I do not recommend any high cost product.

A similar plan from NTUC Income had a front end charge of about 6 months. This is used to pay commission to the adviser, so that they can advise the client over the years.

If you are knowledgeable about selecting the right fund and does not need an adviser, it is better for you to invest in a unit trust and avoid the front end charge entirely.

For your existing ILP policy, if you have just taken the policy recently, it is better to terminate the policy and save on paying the balance of the front end charge.

Read these FAQs

Financial Planning for the Young
Do I need an Insurance Adviser?