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.
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.
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