ILP and Unit Trust

Dear Mr. Tan,

Why do I have to bear the upfront charge of 15 to 18 months on investing in ILP, when I could have invested in a regular saving unit trust without this charge?

REPLY

Insurance agents are used to receive high commission on selling an endowment, whole life or critical illness policy.

When the insurance company introduced investment-linked plan (ILP), they have to pay similar commission to get their agents to sell these products. This requires 15 to 18 months of premium to be deducted to pay the commission and other charges.

Some insurance company such as NTUC Income have lower charges. See the comparison in this webpage:
http://www.askdrmoney.com/Ins_ILP_RP.htm

If you invest in a unit trust, you do not have to bear this upfront cost. But, the unit trust may deduct a higher management fee, which is reflected in the higher expense ratio. Most people prefer to pay a higher annual fee, rather than suffer a large upfront deduction. The exception is the STI Exchange Traded Fund, where the annual fee is very low, at only 0.3% per annum.

If you invest in the Flexi-Link from NTUC Income, provided you have a minimum starting investment of $5,000, you do not have to pay incur the upfront charge for a regular saving plan. You still have to bear 3.5% spread for each investment.

The best options are:

1. Invest in the STI Exchange Traded Fund
2. Invest in the Combined Fund from NTUC Income through Flexi-Link.