Dear Mr Tan,
I currently have an investment link life policy. I calculate my loss to be $6000. I decide to surrender this policy and take up term insurance. Is my decision to surrender this policy a wise choice? Should I buy the term insurance from Aviva or NTUC?
REPLY
Normally, it is better to continue an existing policy, rather than to terminate it, as you have already incurred the upfront cost. However, you should look at the continuing cost, before you take your decision.
I suggest that you ask both Avivia and NTUC Income to give you a quote for the term insurance. You can compare the premium rates and make your decision based on the facts.
You can get more guidance from my book, Practical Guide on Financial Planning. It can be bought here:
http://projects.easyapps.sg/iShop/public/common/Order.aspx
IMO, it would be better to look for affordable term insurance to replace the ILP. Firstly, the mortality charges for ILP are very tangible and will go up substantially in later years. By then it will be a constant battle between high charges, high fees and hoping that market returns are good enough. Secondly, as ILP is a (lousy) investment vehicle, the policyholder will also face constant emotional battle between taking risks and accepting losses for potential bigger returns versus being conservative and potentially the cash value being insufficient to overcome the increasing mortality charges. The FA, FC, FP, RM (or whatever) may also try to be fund manager and ask you to switch funds at the wrong times e.g. switch into bonds/money market in Oct 2008 and switch back into equities/commodities in Oct 2009.
ReplyDeleteDo not terminate the ILP yet, due to insurability risk. Take your time to scout around and ask for quotes from a few insurance companies to compare. They are able to generate PDF quotations and benefit illustrations to send to your email. Each complete document will be about 12-15 pages long. Read the Terms & Conditions and ALL fine print. Do your homework. You can also explore if you qualify for any group term insurance (much cheaper!). You can then opt to split coverage between group & personal term policies to hedge.
I'm giving also giving up my Prudential ILP due to making loss 45% after holding for 8 years.
ReplyDeleteCost of Life InsuranceCost of life insurance ultimately depends on many factors including your age, gender, weight, if you’re a smoker, the amount you wish to take out, the period you plan on taking it out for, whether you’re a healthy weight, have an illness (terminal or not) and whether or not you work in a hazardous environment.
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