Sunday, January 20, 2008

Continue existing policies

Dear Mr. Tan

I would like to thank you for your generousity in time and advice for everyone. Your blog has been an eye-opener for me.

I would like to seek your advice on my family's insurance needs. Finance has been tight for us. We have 3 regular premium ILPs that were bought 7 years ago. We are thinking of stopping the ILPs and buying a Term insurance.

My agent has suggested that we buy a life insurance policy. Do you think that this is a good idea?

REPLY

For the three ILP policies, can you find out the following:

1. What percentage of the monthly premium is invested from now onwards (i.e. after the policy has passed 7 years).
2. What are the deductions from the monthly premium to cover the policy expenses and mortality charges?
3. What is the annual charge on the investment fund?
4. What is the spread on investing each premium into the fund?

Quite likely, you have passed the period of high upfront charges. If this is the case, it is better to keep the ILP policies as an investment for the future.

I do not recommend a new ILP policy, as it incurs high upfront charges. But, if you have already incurred it in past years, it is better to continue with the policy.

I suggest that you buy a decreasing Term insurance to cover 5 years of your earnings, reducing over a period of 20 years. Do not buy the whole life policy.

You can read the FAQs here:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/ilp.html
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1 comment:

Anonymous said...

I make this assumption that they are regular ILPs. If they are, good chance they have already passed the high deduction period, as rightly pointed out by Mr. Tan. They should be enjoying 100% allocation of your premium less the mortality charge to investment. However, if you have high coverage but paying low premium the allocation will be low too.
Example, i know of customers having coverage of $300k sum assured but paying a low premium of $100 only. The mortality charge will eventually deplete the premium leaving very little for investment.
This was very common in the past when agents sold on this pitch.
A bomb is waiting to explode when you get older.
In my opinion this type of plan is suitable as protection plan.It is better than whole life and endowment which both lack transparency and control.
Having said, it is ideal that you separate protection and investment.

January 20, 2008 5:10 PM

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