Saturday, December 15, 2007

Switch to low cost fund

Hi Mr.Tan,

l have been a fan of your blog and would appreciate your advice.

I bought a PruLink ILP policy 10 years ago. The invest $200 a month. At that time, I had no idea on insurance or investment. l am now aware about the high distribution costs and fund management charges, after reading books and reaffirmed by your articles.

I have decided to separate my insurance and investments. I intend to cash out on my ILP policy and invest my $200 separately.

Here are my options:

A) Buy a Term insurance
B) Use my CPF to buy an endowment to get a regular streams of income 10/20 years later

REPLY

The PruLink ILP is actually like a unit trust. You have already incurred the high upfront charges. Going forward, the charges should be quite modest. By now, you are probably investing 100% of your monthly savings, similar to a unit trust.

Before you make a switch, you have to consider the expense ratio of the Prudential fund, with the the unit trust that you wish to invest in. You may find the expense ratio to be similar, so there is no advantage in making a switch.

You can also look at the mortality charges compared to the Term insurance.

If you make a switch, you should go for option A, i.e buy Term and invest the difference. Do not take option B (endowment plan) as you will be incurring high charges again.
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2 comments:

Unknown said...

My advise: Stick with yr current prulink ilp, it gives gd value for yr $. i-term can be bought as a new policy. i supposed e prulink ilp also covers you sufficiently for health & disability like what it was set out to do 10 yrs ago.

December 16, 2007 1:34 PM
Anonymous said...

Knowing that you may consider endowment I am sure insurance salesmen are already knocking at your door or swarming you with incessant calls. The mere mention of endowment will turn them on immediately, both men and women. You can see dollars rolling in their eyes. But before their eyes pop out issue a statement that you change your mind and you will stick to your regular ILP which is showing sign of accumulating cash value. This is a consensus that you should continue. Your protection is actually a YRT term insurance and is till cheap. Consider scaling it down when you hit 55 years because your mortality charge is going to hit the roof and you may not have enough cash value to fund the insurance. Meantime set up another account to take care of your investing. This is to accumulate for your retirement or maybe other goals.

December 16, 2007 11:26 PM

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