Here are some insights, to ILP
ILP is a tool build by insurance company to "help" investors make money by investing, while the intention is good and itll be better than holding cash, heres some information to look out for, I will be telling you what your agents are not telling you.
1) ILP underlying investments are unit trust. And many of those you are able to invest directly instead of through an ILP, lets take a look at the fees
- Unit trust has their own management fees, its pretty standard stuff but the below info are the additional fees to invest via ILP
- ILP as a product of the insurance company, charges an additional layer of admin fee usually 0.5%~1.5% pa. Tabulating the yearly report etc requires manpower so naturally theres a fee.
- There is an Agent management fee incorporated in the ILP which is meant for the agent to oversee your portfolio and do switching as and when necessary depending on market condition/cycle. usually around 1%-1.5% pa. From my experience, once an agent sells something, they get a heafty upfront commission, and after that they usually dont oversee this piece anymore.. so its just sunk cost. (an agent has no monetary incentive to oversee your portfolio because switching is free and additional work for the agent. The agent management fees goes to the insurance company, not the agent. its human nature unfortunately)
- and then theres a mortality charge for your coverage. which is the death coverage where your agent tells you that when an investor passes on, principal will be protected. there is no free lunch in this world, this coverage is being paid by you annually by deducting from your investments. and this cost gets more and more expensive as you age because its renewed yearly based on your age, its more expensive to cover an individual that is older, so anyone above 35 years old, it starts to eat into the investment returns. again additional cost.. this mortality charge can easily cost you 0.2% of your invested portfolio yearly if you are in your twenties all the way to 3-5% if you are in your 50s-60s
- then theres this feature of lock in period, once you commit to the amount, u cant change. The reason why insurance company have this feature is because it forces you to stick to the Dollar cost strategy which has been proven to be profitable based on 150 years of market data. If you are disciplined enough to stick to it, you can achieve the same results too without the lock in period as a claus that forces a penalty to you if u withdraw before your commitment period. This lock in period feature is to ensure once u buy the policy, the insurance company is assured that over the years they will be able to profit from your own money to make up to upfront bonus they give you (see below)
- some ILP gives you a sign on bonus of X %, which gives you an illusion of value. True enough, it is something attractive at a glance, but again , theres no free lunch. it is a marketing gimmick that let you feel that its worthwhile to buy an ILP and get a Bonus upfront, but over the years, the longer you hold, the fees mentioned above will drip out this bonus and then eat into your profits. ILP are easily a 10 years to 25 years commitment.
In summary, while ILP is better to holding cash, it is not the most ideal way to participate in the finanical market to invest and grow your wealth.
If you like the idea of principal protection upon death, i suggest just buy a term plan of x years that covers your principal amount, (your investment horizon, eg for retirement, kids education etc) it is level premium and not renewed yearly.
And invest directly into the market yourself, but then again, choosing the right tool is also important, using the right fund with the mandate that suits your objective of investments. Eg Equity fund is more volatile but higher capital growth potential for long term wealth growing or a bond fund that pays out passive income and is more stable. That also mean when the stock market is in a bull run, a bond fund wont be able to see that growth. Its about understanding how each fund works and see if its suitable for you and your objective.
Hope this detailed sharing helps! these are what your agents will never tell you, but here i am. haha if you need further clarity in any finanicial tools, feel free to reach out ! Happy to help ;)
Cheers
Isaac Tan
Here are some insights, to ILP
ILP is a tool build by insurance company to "help" investors make money by investing, while the intention is good and itll be better than holding cash, heres some information to look out for, I will be telling you what your agents are not telling you.
1) ILP underlying investments are unit trust. And many of those you are able to invest directly instead of through an ILP, lets take a look at the fees
In summary, while ILP is better to holding cash, it is not the most ideal way to participate in the finanical market to invest and grow your wealth.
If you like the idea of principal protection upon death, i suggest just buy a term plan of x years that covers your principal amount, (your investment horizon, eg for retirement, kids education etc) it is level premium and not renewed yearly.
And invest directly into the market yourself, but then again, choosing the right tool is also important, using the right fund with the mandate that suits your objective of investments. Eg Equity fund is more volatile but higher capital growth potential for long term wealth growing or a bond fund that pays out passive income and is more stable. That also mean when the stock market is in a bull run, a bond fund wont be able to see that growth. Its about understanding how each fund works and see if its suitable for you and your objective.
Hope this detailed sharing helps! these are what your agents will never tell you, but here i am. haha if you need further clarity in any finanicial tools, feel free to reach out ! Happy to help ;)
Cheers
Isaac Tan