A financial advisor offered a investment plan which has 66% welcome bonus on my initial investment and covers me 101% of the amount if I pass away.. is this worth it? - Seedly
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Anonymous

Asked on 25 Sep 2020

A financial advisor offered a investment plan which has 66% welcome bonus on my initial investment and covers me 101% of the amount if I pass away.. is this worth it?

I was told that if I invest 12k annually for 10 years I will receive 7920 (66% bonus) on my initial investment.

The annual fees for this plan is 2.5% but he explained because of the welcome bonus, u are only actually paying 0.7% in 10 years

If I pass away, my family can go to the comp and claim 101% of my investment unlike investing on my own or through robo-advisors

Any like minded person like myself who thinks the welcome bonus is a plus point? My investment becomes 19,920. A big boost..

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Please read all similar posts on ILP. this is my 3rd reply on ILP within 3 days.

Short answer - not REALLY. ILP has a lot of fees.

Key points from previous reply

  • ILP has four costs - a) investment / fund cost and fees, b) distribution costs to agent / insurance Co, c) insurance Co own admin fees, d) insurance or mortality fees / charges.

If you go with robo advisor, DIY just purely buy funds, you pay only cost A. If you don't need the insurance benefit at all, you do not need to pay cost B, C, D.

  • ILP has long time to breakeven, and often severe penalties for cancellation or even taking premium holidays.

  • between an 20+++ year ILP and topping up your cpf sa / srs, it would make more sense to do either of the cpf top up, or srs. Apart from tax relief, they have no long term commitment. In a bad year, or you got retrenched, or you got a big wedding which you didn't save enough for... You will come to regret this severe stressful ILP that you just gotta continue feeding.

The way you are looking at the bonus is not right, and would skew you towards making the wrong decision.

Ask the agent to give you the projection table summarising all the fees, projected return of 3.5%, and what you will get back at the end of the 10 year term. For 12k x 10 years = 120k, I would not be surprised if you only get back only 90+k at 3.5% return. You would paid more than a good and fair portion of fees to the agent and the insurance Co for a 101% death benefit (which might be an even worse deal compared to a whole life policy).

Its like going to a shop, you want to buy item X that costs $20. The sales man come to you and say buy combo deal for items X +Y + Z for $100 and you get item A for $1 (usual price $5). Instead of paying 20 for item X that you want, you pay $101 for the entire set. You thought you saved $4, but you actually spent 101-20 = 81 dollars more on things you didn't need.

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5 more comments

Luke Ho
Luke Ho

28 Sep 2020

That's because you invested in a different ILP. Additionally, there is no basis to suggest a 3.5% return. Who aims for that? Your bonuses versus your fees should create a breakeven, or a return net of all fees that can be provided by the company that the agent is offering. Additionally, investing works better when you have a larger capital, not a smaller amount. The returns can be positively skewed due to the initial bonus amount.
Takingstock @
Takingstock @

4w ago

If you can share the total cash flow net of fees and deductions for the 10 year period, bring it on. If there is a condition that the bonus units are only eligible for deduction for insurance premiums, do state that do,. Plus your returns assumptions for the funds.
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D

Deedee

Level 5. Genius

Answered on 25 Sep 2020

To be very honest, I am tempted too, even up till now. There are plans with up to 200% bonus (highest I've seen). Human connection > robo anytime. Somemore "Free" money leh. Boost your gains if markets going up or cushions your losses if the reverse happens.

In terms of fees, are you sure the only fees you are paying is this 2.5%? Whatever funds you choose to invest in, they have their own fees which anyone who buys into will have to pay for. So on this, you are already losing out to those who buy directly through their brokers. Did you check for Any other admin/ maintenance fee? You also need to be aware that these fees also compounds. Any withdrawal/ top up fees? Premium holiday will still deduct fees from your accumulated units to maintain your account.

However, if you really think about it, when you invest, the plan is to buy into something (stocks, bonds, ETFs etc), hold long term for compound interest to work. For ILPs, the break even year is ~year 15, and that's on assumption an 8% p.a. returns on your investments, after accounting for all the fees, you haven't even profit! If you want to profit, you need to hold onto your plan even longer. By then, will your agent still be around to continue servicing you, to advise to switch to another fund, if required?

You still need to do your own research. After spending time looking at the suggested options from your advisor, Are you just going to agree with your agent? If you lose money, are you going to then blame your agent or take accountability for your choice?

Remember, past performance do not guarantee future performance. Markets move up and down. Fees are guaranteed whether or not your investments gain or lose. If your units are insufficient to pay for these fees, your account will automatically close and you essentially have lost all your investments (I think. Pls check)

Actually what really stopped me from buying the ILP from my agent is because one only contacts me when there are promos for insurance to buy but did not really explain in depth the policies hence I always end up canceling it but I can't lose contact because my health insurance is there lol. My other agent actually told me there are cheaper options out there so ILP is really for those who are able to service and hold onto the plan long term but likewise, she is unable to guarantee returns although she kept saying is possible. But anything is possible right? :)

So I looked into robos as their fees are smaller, smaller minimum amount, and no lock in period. This gives me time to do my research and eventually deciding on passively investing in ETFs aside from my robos (but disclaimer, I haven't started on ETFs yet haha)

Anyway recently there are other questions by others in Seedly regarding ILPs. Do read through their replies (from agents themselves and other folks like me :)) before committing to this ILP.

All the best in your decision!

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Lim Tian Bao Kean
Lim Tian Bao Kean

28 Sep 2020

Hi, I was approached also on this plan. Understand that the fund they bought into is primarily UOB high yield bond fund. How do i buy into similar funds like this at a lower cost ?
Thank You!
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No free lunch in this world. There are some things to be reminded of:

  1. Fees. It may vary somewhat across different insurers but the core of it is like this - monthly admin fees, policy fees, mortality charges, fund management fees.

There are also surrender charges. Want to surrender or do a partial withdrawal in the first couple of years? You get back ZERO. Can't afford to commit to the lock in period? Surrender charges will be drawn down from your account value for every missed premium.

  1. Everything is non guaranteed, except fees. So if you or your agent doesn't monitor the fund performance, it will be very likely that you will get back much less than what you put in, especially after deducting fees.

  2. ILPs are advisor driven - you rely on the 'expertise' of the agent serving you. And most that I've come across do not know enough about the funds they promote. And even need to rely on corporate staff to tell them about things found in the fund prospectus. Some of them don't even understand fully the structure of the product they sell as if they fell asleep during training. I've come across many agents who don't know how long it takes to do fund switch and want to push through to get dividend distribution before cut off. And this is just a simple example.

Name me one agent who reads and fully understand fund prospectus before recommending that fund. This is meant to be READ and UNDERSTOOD by all, both agent and client.

  1. Don't forget, core business of insurers is to provide insurance aka protection. Transfer of risk to them to account for unforeseen circumstances in life.

Consider these before you invest with an insurer next time.

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Antonius Ricardo

27 Sep 2020

And i don’t see any replies from any agents of any companies who usually soar anything related to insurance HAHA
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Aish S Don

Aish S Don

Level 2. Rookie

Answered on 28 Sep 2020

Hey a lot of these answers centers around the assumption that this is an ILP. the question clearly states that it's an investment plan. I can't speak for other companies but Great Eastern investment plans do not charge for insurance Etc. but still has a death benefit payout of account value or 110%. They also provide a surrender value table which has factored in all the fees/costs to you as an investor, and you can see the projected amount you will receive based on a lower and higher projected return rate. It's very straightforward and honestly, people have really got to to stop overthinking and assuming these companies are out to get you. Whether your agent gets high comission or not, is besides the point. If youre happy with the projected returns, what's wrong with advisors being paid for their hard work? Win-win situation. And tbh, some commission doesnt even cover the work they got cut out for them, because these clients end up being long term clients, and it's not like advisors charge hourly fees for answering all their questions.

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Daniel Kok

Daniel Kok

Level 6. Master

Answered on 27 Sep 2020

My short answer would be, if things are too good to be true, it most probably might be!

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Su Jun Hao
Su Jun Hao

27 Sep 2020

Is it really too good to be true?
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