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Financial: The useless ILP,& how to go about terminating it

Discussion in 'The Courtyard Café' started by TerrexLee, Oct 9, 2017.

  1. TerrexLee

    TerrexLee Alfrescian Old Timer

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    Have you previously bought for yourself or your loved ones investment-linked policies (ILPs)? Well, on the surface such instruments put forth a rather enticing proposition: secure substantial insurance coverage, at the same time have funds funneled into unit trusts to grow your nest egg. But the somewhat fuzzy manner in which things actually "work" behind the scenes typically means you the client will in all likelihood be shortchanged despite your best efforts to be discerning. It shouldn't come as a surprise; after all, actuarial science is a notoriously sneaky slimeball exploited to benefit an insurer's bottom line first and foremost.

    Let's discuss a real life case (yes it happened!) in which an individual in his thirties who until late September 2017 has been contributing a not quite insignificant monthly premium of $215.66 towards a $200,000 sum assured ILP offered by a well-known international insurer. Having done so for the past eight years plus since June 2009 (which therefore spans a duration of 12 × 8 + 3 = 99 months), he would have forked out a total of $21350.34. The bloke finally came to his senses and decided to cut his losses after much deliberation, so he surrendered his policy and received a cheque for an amount slightly less than 16k. How much did he throw down the drain altogether? A whopping five thousand dollars plus change! Utterly shocked? You should be. In a nutshell, here are the main reasons why the purchaser of an ILP will almost surely be at the losing end of the deal:

    Your premiums are used to pay for a lot of crap other than for actual investment purposes


    In the initial years, chunks from your premiums are taken to cover distribution costs, with the remaining funds (obviously no longer a 100%) being used to actually invest in unit trusts sans typical 5% sales charges. And then there are insurance charges incurred alongside policy fees which are deducted by selling away units on a monthly or annual basis. As one ages, insurance charges soar, not in a linear fashion mind you, but in an exponential one, which means the scenario where the units held in your policy end up being completely sold away just to account for these costs can arise, and you may even have to fork out extra monies to top up for the outstanding shortfall. In a nutshell, you could become a very unhappy holder of a policy with zero cash value, and still have to burn cash for continued insurance coverage in your twilight years.

    More at Financial: The useless ILP, and how to go about terminating it
     
  2. zhihau

    zhihau Alfrescian (InfP) + S-Mod Old Timer

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    Hmm... investment link policies... who is the winner?
     
  3. JohnTan

    JohnTan Alfrescian (InfP) Old Timer

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    It is common to read about millionaire insurance agents and how they attract lots of new agents through their huge income that most PMETs will never earn, including the likes of doctors and lawyers. I know of top agents in their late 20s or mid 30s earning what a senior doctor or lawyer would only earn in the later part of their careers.

    Where do you think that sort of money comes from?

    It is common sense that the bulk of your insurance premiums goes to paying their salaries, and the salaries of the corporate staff at the insurance company, before whatever's left is used to for your investments and insurance coverage.

    Nearly every agent I know would push ILPs because that is where their fattest commissions come from. The ILPs suck for most consumers, but it is the golden ticket to financial freedom for the insurance agents, aka financial advisors.

    If you want decent insurance, you are better off buying term insurance. It is much cheaper because you are paying only for insurance. The drawback is that most term insurance end by your mid-60s.
     
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  4. Engeng

    Engeng Alfrescian Old Timer

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    I have done exactly that to terminate my IPL after almost quarter century. Quite poor returns indeed. Only 1.8% per annum return. Don't buy ILP. I tell all my friends that too. Do good and be good.
     
  5. eatshitndie

    eatshitndie Alfrescian (Inf)

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    i also liquidated. the mutual funds it invested in were limited and yielded only 0.69% per anal. at least upon cash out penalty was only $6.9k.
     
  6. Engeng

    Engeng Alfrescian Old Timer

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    It's a matter of strategy. I consider it free critical illness insurance. Once upon a time I thought of doing good and buy multiple life insurance policies including ILP that will make me instant millionaire when I die and donate a big portion to charities. Even done up a will for that. Do good and be good.
     
  7. eatshitndie

    eatshitndie Alfrescian (Inf)

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    for me already have enough stashed away for beneficiaries, so no need insurance policy to fill a critical gap.
     
  8. Engeng

    Engeng Alfrescian Old Timer

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    Well that was when I was young and think of helping sinkies. Alas now I only think of terminating the policies one by one with zero guilt.
     
  9. Engeng

    Engeng Alfrescian Old Timer

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    Come to think of it, I maciam Buddha indeed to think of doing good in this way. Well at least been there and done that. Not like selfish sinkies and jiuhukia only think of themselves and their families only and think they are so damn kind and call others unkind.
     
  10. Leongsam

    Leongsam Administrator Staff Member Old Timer Old Timer

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    I don't recommend ILPs as an investment. However I do recommend them as a form of forced savings for those who don't have the financial acumen or the willpower to save and invest on their own.

    Buying and ILP is a positive move if the money would otherwise be spent on booze, women or a fancy car. It is not a good strategy for someone who is disciplined and who knows how to grow his nest egg.
     
  11. eatshitndie

    eatshitndie Alfrescian (Inf)

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    ilp stands for irrational, lazy procrastinator. constitutes majority of population. nobel econ prize just went to the professor in u of chicago who masterfully describes (irrational, ill-disciplined and illogical) human behavior in daily economic decisions.
     
  12. hotbot

    hotbot Alfrescian Old Timer

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    i, personally, also know an ex insurance agent who in his peak, like what you say, was well regarded as high achiever, only during his heydays. but now at age 50+, he is borrowing money from relatives, and finding ways to make a living. i regard this insurance industry as a scam, a kind of its own. the petite number of millionaire insurance agents that you mentioned, are the living advertising tools to attract the more young and gullible into this industry. the older i get, i start to appreciate CPF and medisave. the money in there is best secured by the gahment. sinkies, are not very bright pple, in many instances, they get ripped off by scams effortlessly. I am willing to let my cpf money used by gahment for implementing their long visioned plans to build a better country for the pple.

     
  13. Narong Wongwan

    Narong Wongwan Alfrescian (Inf)

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    It isn’t a fixed deposit where even if you terminate before time you can get back your capital.
    You want see returns then jolly well wait for the thing to mature. Crappy returns? Well you did sign on the dotted line. They’ll tell you whatever ‘promised’ returns were just projections.
    You can’t have your cake and eat it too. Save your own money and invest....if you need insurance as a safety net for your family if something happens to you then buy term insurance.
     
  14. Leongsam

    Leongsam Administrator Staff Member Old Timer Old Timer

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    Insurance isn't about returns in the first place. It's about planning for your loved ones should you meet an early death.

    If you buy an investment linked policy for $250,000 today and die next week your family will receive the full sum assured even though you have only paid one installment. I can't think of any better return than that.

    Insurance is a bet. The insurance company is betting that you will live till the the maturity of the policy and hence they'll make a shit load of money out of you.

    You on the other hand are betting that you'll die quickly so your family can maximise your return on investment.
     
  15. yellowarse

    yellowarse Alfrescian (Inf)

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    You're right: insurance is a bet; it is not about returns. But it's a bet that many cannot afford not to place, unless you're financially strong enough to cope with catastrophes (death, catastrophic illness, loss of property). Warren Buffett, for instance, doesn't buy personal insurance.

    So buy term insurance. ILPs are a scam — you'd be better off saving and investing your own money.
     
  16. Leongsam

    Leongsam Administrator Staff Member Old Timer Old Timer

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    As I said earlier most people are not capable of saving and investing on their own. Whatever is in their take home pay will be splurged on unnecessary consumption.

    To those people I say go ahead with ILPs. It puts money away for a rainy day.
     
  17. garlic

    garlic Alfrescian (Inf)

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    Buy a term insurance, a couple of participating fund living policies and invest the rest in index funds. This strategy forces you to save, be flexible with investments and best of all, covered and liquid.. most people often forget about being liquid.
     
  18. Leongsam

    Leongsam Administrator Staff Member Old Timer Old Timer

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    You ask the average Joe on the street and he won't have a clue what indexed funds are.
     
  19. garlic

    garlic Alfrescian (Inf)

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    I thought whole street full of graduates? lol...
     
  20. Leongsam

    Leongsam Administrator Staff Member Old Timer Old Timer

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    You know as well as I do that it means absolutely nothing to be a graduate.
     

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