Last Updated on 21, November 2016
Question: Wilfred, my financial adviser sold me a product called X and he told me that the insurance charges are constant throughout my entire life. My premium is $1,200 a year. However, I read in the forum that such ILPs’ insurance charges increase with age. I am confused, can you advise me how much will I be paying when I am say at 80 years old? I am a male and non-smoker.
Answer:
The relevant parameters from your policy are as follows:
Basic policy: $200,000 covering death, Terminal Illness (TI) and Total and Permanent Disability (TPD). Upon death, TI or TPD, the payout is $200,000 plus market value of the underlying unit trust.
Cost of Insurance (COI) of basic policy chosen: Yearly Renewal Term (YRT)
Rider: $200,000 covering Critical illness accelerator.
Calculation as follows:
The monthly mortality charges covering death and TI at age 80 is $4.253 per $1,000 sum at risk (given in the benefit illustration)
The monthly insurances charges covering critical illness at age 80 is $5.079 per $1,000 sum at risk (given in the benefit illustration).
The ILP charges per month at age 80 is 4.253 x 200000/1000 + 5.079 x 200000/1000 = $1866.40. Therefore the annual investment linked policy charges is 1866.40 x 12 = $22,396.8 while you are paying only a premium of $1,200 per year.
Since the insurance ILP charges at age 80 is much higher than your premium, the shortfall has to be met by selling the underlying unit trusts or by you topping up the premium. If you do not do this, the policy will terminate (lapse). This means your policy will terminate when you need most.
For those who are keen to know which product I am referring to, you can email me.Like this article? Subscribe to my newsletter below for more.
Hi Wilfred,
I bought whole life (pay until 85Y), endowment (8 years more to go) and ILP, about 25 years ago. (I am 49Y now). Based on my current circumstances, I do not require the “insurance” component of these policies any more as I have built up my personal savings.
From a financial point of view, does it make sense for me to terminate them? If so, which ones? Or should I just continue with them? BTW, I also have enhanced incomeshield medical.
Thanks.
KL,
You asked a personal question and any answer to your question will be construed as financial advice within the meaning of Financial Advisers Act. I cannot answer your question since I am not your financial adviser. You have to seek advice from your own financial adviser.
Hi Wilfred,
I’ve a pure 100% ILP for a few years. Recently I’ve read a lot of negative reviews about having such a product due to high charges (policy fee, maintaining account fee) as compared to directly buying UT from the market (sales charge + fund manager fee only).
Would you be able to advise if I should terminate the policy, incur the early termination charges and use the amount to invest from the market directly? Thanks
It’s against the law to advice you in this manner. Please contact me directly for a formal consult.