Tip for the Young: This tip is worth at least $20,000

This tip is worth at least $20,000. So, pay attention.

If you save invest in an investment-linked product (ILP), you should study the distribution cost. This is the amount of your savings that is taken away from you to pay the insurance agent.

The distribution charge is not told to you directly. Instead, the insurance company tells you that 20% (say) of your savings is invested for the 1st year, 60% is invested for the second and third year and 100% from the fourth year onwards.

In the above example, a total of 160% of your annual savings (ie 19 months) is used to pay for the distribution cost during the first 3 years.

Take a look at an analysis done in this website:
http://www.askdrmoney.com/Ins_ILP_RP.htm

The distribution cost varies from 7 months (ie NTUC Income) to 19 months (for most other insurers). The difference can be up to 12 months.

NTUC Income takes away less from your savings to pay our agents. A difference of 12 months means that we are investing an additional 12 months of your savings for you, compared to other insurers.

If you save $300 a month, you will get an additional $3,600 in savings by going through NTUC Income. Assuming an average investment yield of 6% per annum for the next 30 years, the additional savings of $1,800 will accumumulate to $20,600 on maturity.

Yes, this tip is worth $20,000 to you.

Here is another valuable tip. If you have recently committed to an expensive ILP plan that takes away up to 18 months of your savings, you have the choice to terminate that plan now. As the distribution cost is being taken away from your savings over 3 years, the actual "loss" to you by terminating now, is much less than 18 months.

You can move to a better plan from NTUC Income. Send an e-mail to me at tankl@income.com.sg.