facebookHi, does it make sense to cash out my investment life plan and use it to buy a pure life insurance? - Seedly



05 Oct 2020

General Investing

Hi, does it make sense to cash out my investment life plan and use it to buy a pure life insurance?

My premium is around $400 per month and i have been holding it for 8 years. Cash value is $32k. Thinking of cashing out and use it to do my own investment and get a pure life insurance plan instead.

Discussion (5)

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Elijah Lee

Elijah Lee

05 Oct 2020

Independent Financial Advisor at Phillip Securities (Jurong East)

Hi anon,

It sounds like you have an investment linked plan that also provides coverage of some sort.

Generally, I don't advise mixing investments and insurance together. Do them separately.

However, the plan is still currently providing you with coverage and hence it will be prudent to get alternative coverage settled first before you surrender (if that is the decision you come to). Take note that there is typically a 90 day waiting period for CI.

Mortality charges (the cost of providing the coverage for you, year on year) for ILP increase exponentially over time, and that is guranteed to occur (unless you reduce your coverage; in which case, why would you buy an ILP for coverage?). Your funds have no guarantee of performance returns and even less so the probability that their returns will be exponential. You'll eventually reach a point where mortality charges far outstrip the returns, and that is when the policy will start to lose cash value. If you want to avoid this, stick with pure insurance such as death/TPD via a term plan, or CI with a limited pay whole life.

Neither does an ILP make sense for investment purposes in my view, there are much better ways to invest, and even if you require an advisor to manage your portfolio, you won't have to see your investment returns erode due to mortality charges.

Speak with an independent financial advisor to get more information on the alternatives available for your coverage, as there are many insurers in the market that carry plans for protection purposes; in the mean time the ILP will cover you from the unforseen. Getting a new term/WL now is still a better decision as 1) you are younger and it will be cheaper than to do so a few years down the road 2) you are healthy and insurable (which is the more important point).

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Hi anon,

To add on to risk averse's answer, although some investment plans have bonus at round figure years, when you terminate the plan, you may have to return the bonus on top of all the other charges that may apply upon early termination.

I would suggest for you to read through your policy documents to take note of your charges and determine if it makes sense to terminate now, or two (or more) years later. If the document is too confusing, pls engage your agent who sold you the plan, or anyone you're comfortable with, to discuss your option. As far as I know, fund switching is usually free so I might consider switching for funds which have done better consistently for the past 5 years, then decide again 2 (or more) years later.

Before termination, if your investment plan has some form of protection of CI / ECI maybe, you might want to get your life plan with CI / ECI riders covered FIRST before reduction or premium amount or even termination.

In my view, in general, yes - buying term and investing the rest is usually the most efficient optio...

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