Hi Irwan,
Generally, I would not reocmmend an ILP for the purposes of protection. And no, a FA's work does not involve advising people not to cancel plans. To me, my job is to make sure you understand how your plans as well as current plans on the market work, so that you can make an informed decision on how to get the best plans for your evolving needs.
Now, about the ILP. There is something called the 'Cost of Insurance' (COI). This cost is paid by you, or rather, through your policy, and is the cost to cover you for a specified amount (in this case, $100K CI)
When you have an ILP, part of your premium goes towards investment linked funds. From the value of those funds, the COI for your age is deducted. As you can imagine, that means the value of investments is lower than your premium. However, for someone young, the COI is low. It will increase over time however, and the increase is exponential. However, this is also the reason why it appears to you that the investments suck, because a lot of the investment value has gone towards paying your COI for $100K CI cover.
Knowing that insurance is a product for the long run, what happens years down the road? Due to the exponential increase in the COI, there will come a point where your premiums are equal to your COI. In this case, your premiums aren't invested. And the year after that, your COI is definitely more than your premiums. To make up for this shortfall, an amount more than your premiums will be deducted from your investments to pay for the COI, and this starts to erode your investment value.
Eventually, your investment value will fall to zero and the policy terminates, leaving you without any coverage. The only way out will be to pay increasing premiums to sustain the premium (not likely what you want to do), or else decrease your coverage (maybe for death/TPD, but unlikely you will want to reduce the coverage amount too much for CI).
This is an 'average' scenario. Consider what if your investments don't do well? They will lose value, and yet the COI still gets deducted. Thus, the mixture of a guaranteed exponentially increasing COI with a non-guaranteed return on your investment is likely a recipe for disaster and very early lapsing of the plan.
I think this should be enough information for you to decide what you want to do with your ILP.
Should you decide to look for an alternative, for CI cover, you can consider a limited payment life plan, or a term/multipay plan, depending on your budget/needs. The premiums are level and the cost of insurance is already build in to the plan in such a way that, as long as you pay your premiums, your coverage is assured. There won't be any sudden lapse or unexpected termination of coverage. However, do take note that should you decide to replace your ILP with an alternative, you will have to ensure your new plan is in force first and the waiting period is over before you terminate the old plan.
Note that this isn't meant to be taken as financial advice, so do speak with an advisor for a better understand before you take any action.
Hi Irwan,
Generally, I would not reocmmend an ILP for the purposes of protection. And no, a FA's work does not involve advising people not to cancel plans. To me, my job is to make sure you understand how your plans as well as current plans on the market work, so that you can make an informed decision on how to get the best plans for your evolving needs.
Now, about the ILP. There is something called the 'Cost of Insurance' (COI). This cost is paid by you, or rather, through your policy, and is the cost to cover you for a specified amount (in this case, $100K CI)
When you have an ILP, part of your premium goes towards investment linked funds. From the value of those funds, the COI for your age is deducted. As you can imagine, that means the value of investments is lower than your premium. However, for someone young, the COI is low. It will increase over time however, and the increase is exponential. However, this is also the reason why it appears to you that the investments suck, because a lot of the investment value has gone towards paying your COI for $100K CI cover.
Knowing that insurance is a product for the long run, what happens years down the road? Due to the exponential increase in the COI, there will come a point where your premiums are equal to your COI. In this case, your premiums aren't invested. And the year after that, your COI is definitely more than your premiums. To make up for this shortfall, an amount more than your premiums will be deducted from your investments to pay for the COI, and this starts to erode your investment value.
Eventually, your investment value will fall to zero and the policy terminates, leaving you without any coverage. The only way out will be to pay increasing premiums to sustain the premium (not likely what you want to do), or else decrease your coverage (maybe for death/TPD, but unlikely you will want to reduce the coverage amount too much for CI).
This is an 'average' scenario. Consider what if your investments don't do well? They will lose value, and yet the COI still gets deducted. Thus, the mixture of a guaranteed exponentially increasing COI with a non-guaranteed return on your investment is likely a recipe for disaster and very early lapsing of the plan.
I think this should be enough information for you to decide what you want to do with your ILP.
Should you decide to look for an alternative, for CI cover, you can consider a limited payment life plan, or a term/multipay plan, depending on your budget/needs. The premiums are level and the cost of insurance is already build in to the plan in such a way that, as long as you pay your premiums, your coverage is assured. There won't be any sudden lapse or unexpected termination of coverage. However, do take note that should you decide to replace your ILP with an alternative, you will have to ensure your new plan is in force first and the waiting period is over before you terminate the old plan.
Note that this isn't meant to be taken as financial advice, so do speak with an advisor for a better understand before you take any action.