Wednesday, April 16, 2008

Effect of deduction

Hi Mr. Tan

I purchased a ILP 10 mths ago. Based on the postings in your website so far, it seems like ILP is highly unrecommended. Now, I realize I didn't really understand the meaning of effect of deductions.

Based on the plan projected for me (below), after 25 yrs, will I get a decent return? i.e, if the return is good (9%), will I get a lump sum of 111700?

Another thing is my agent told me that at end of 25 years, I can actually stop putting in money and then use the bonus or dividends to pay and cont to earn? Is this true, so can I get the 417200 then? I am feeling quite lost, please help me, thanks.

REPLY

It is not realistic to expect a gross yield of 9% in the future. I suggest that you take the average between the yield of 5% and 9%.

More important, you should study the effect of deduction. If the deduction takes away 2.5% from the gross yield, then it is an expensive policy.
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3 comments:

Anonymous said...

I find that almost all agents don't practice Full Disclosure . It is a very important component of the advisory process but in the selling process it is avoided by agents.Customers make decision based on half truth and perhaps additional falsehoods.MAS must criminalise this willful and wileful concealment, not just for this type of product but for all products

April 16, 2008 6:52 PM
Anonymous said...

After 25 years you can stop paying premium but this doesn't mean you stop paying.The company deducts from your cash value to pay and if it is treated as a loan you have to pay interest at 8% or more. This is damned dirty, both the insurer and the agents don't tell you . A loan is an investment by the company on you and you pay 8% return to the company. Why do you think the company is so keen to lend you money ? For the company it is a guaranteed investment. Your cash value serves as guarantee.

April 16, 2008 7:24 PM
Jeow Li Huan said...

For an ILP, taking cash value to pay for the premium will not be treated as loan, so it won't be an 8% deduction. But still, cashing out will cause you to loose 5% from the bid-offer spread, so it's still best not to do that.

Moreover, you risk depleting your cash value and having your policy lapse.

April 18, 2008 12:59 PM

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