Investment Linked Policies (ILP)
Asked on 12 Oct 2018
What was the final straw? As I have 2 30 year plans (1 ILP, 1 endowment) for each at about $250 a month premium and after consideration I feel that one should be surrendered due to tight finances. However , after paying for 3 years there will be loss of about 5k or 10k for both plans if cancelled. So I'm considering to surrender 1 but a bit worried on the losses. Any advice?
Hey there friend :) You are not alone. In fact you can consider this reading this: https://blog.seedly.sg/investment-linked-policy-ilp-singaporeans/
We understand the many negativity surrounding an ILP online. Like all of your other insurance policies and investment decisions, below are 5 questions to ask before coming to a conclusion.
What was your intention when getting the policy? Is the policy still on its way to helping you meet that objective?
Can you invest at a lower cost?
Are you able to invest on your own and fetch a higher return?
Are you well-covered or have plans to get insurance coverage after cancelling your ILP?
Does it make sense to carry on with the ILP in terms of cost and its functionality?
” In short, if you are disciplined and know enough to do better financially and in terms of coverage, go ahead and cancel that policy! If not, stick to it.”
You have two options:
1) Cancel cut loss and move on
"Had a monthly ILP of $200 and the fund was invested in the SG equity market.The policy only gave her a 10% return over 10 years. This was despite the market doing well Straits Times Index (STI) being at a high in early 2017.Should I had terminated it during a market downturn, I might not have broken even. Should I decide to do my own investing I can probably get around 5% yield a year simply by investing in REITs."
2) Make some changes to your existing ILP policy and carry on
"I had an ILP for 8 years and the investment results have been negative returns. I would have surrendered it if not for the health insurance component. The decision is partly due to my age, and the premiums to get a brand new health insurance coverage becomes too high.To overcome this, I surrender 90% of the investment after 10 instalments and took the funds out for other uses. So in essence, I still got my insurance policy but paid a small penalty to withdraw the funds out."
I've had quite a bit of experience in this area, which I actually mentioned in my response to Budget Babe's open letter: I have helped clients surrender policies, outright recommended them as well as told them why they should hold onto it instead. You can take a brief look here. https://www.moneymaverickofficial.com/posts/budget-babe-open-letter-response
Focusing directly on advice: taking a loss isn't simple. No one online can justify why you should take the loss unless they can guide you through the process of making it back with facts and figures.
Kenneth has already provided the best advice here, but I'd elaborate by saying see someone, ideally myself or another trusted FA, about the details regarding the options that Kenneth has provided. A FA would arguably have incentive to ask you surrender your policy and put it in a new plan: ask them to justify it. How will they recover the 10k you have lost? Why would they tell you to surrender it at a loss? Can they show you how your investments have performed so far, and why you should choose a specific action? Will the investment returns improve based on the diversification of funds chosen?
Additionally, ask the FA to see if they can help you in the area of your tight finances. What was your situation prior that you felt the premiums was managable before, compared to now? Have you explored other options in cutting down costs, or unlocking assets? (e.g. Mortgage or lowered Mortgage interest, CPF, etc)
I really do encourage you to please get a proper consultation on this. You can always reach me here:
Based on what u have written, ie tight finances, it feels like u have either a) overcommitted, or b) overpaid to the policy. $500 per month is significant. To put this in context, I’ve seen some people recommend that u put 10% for insurance. This means that u r earning 5k take home pay. (Assuming u have no other insurance.)
Also, 长痛不如短痛 (short pain better than long pain)
For me, my last straw was when,
1) ILP was losing money, and my individual stock portfolio is losing money, but individual lose lesser than ILP’s portfolio.
2) my agent is only interested in getting me to stay on the plan, by saying that investing on my own is risky. Yes it is risky. But the results seems to show that I’m slightly better off investing on my own, rather than through an ILP.
3) I cancelled the plan with a significant loss. I lost about $10-12k over the termination of ILPs. So yes, I felt pain too. However, it is better for me to redeploy the funds to my own investments and other insurance plans, e.g. Term plans, hospitalisation plan, etc.
I did assign away my 25 year endowment after close to 14 years of paying to REPs holdings. They paid me 5% above current surrender value of the policy. So if you are looking to surrender, you may want to consider this option.
Personally, not sure if I managed to break even, but not that big a concern as the premium was rather small on a monthly basis. Redeployed the funds into my main portfolio instead which is giving me 10X returns of an endowment.
It is always not worth it to surrender any policy. Try to see if u can get a premium holiday or utilise the cash value (if any) of the policies, so that it can at least still continue and offer some sort of protection
Check if possible to lower the premiums to the lowest possible amount for the ILP. I believe shld be 1200 per year (not sure which insurer you are with).
This is an alternative besides just straight out canceling.
I did that after 7 years. I was relatively young then, so I thought the next 10 years or 20 years, I am going to save so much more money if I terminated the policy and use the premiums on ETF, index funds or even plain stocks.
So the savings in future the loss in termination.
PLUS, the current losses is a sunk loss, logically, I should not think about it. Difficult emotionally, so not an easy decision.
But best decision I ever made. My kids in the future will thank me for this.
go check your policy details, even after you paid all the commission (distribution costs) to the agent and his manager, there are policy fees PER MONTH, Trailer fees, etc. And there are many hidden fees in the funds, it could be fund feeder (means the ILP funds feed into a larger fund), higher management fee (they can get away with it, because their selling point is not cheap fund, its good advice from your insurance company).
Even the sum assured is absurdly fixed. Instead of deducting money from your premium paid, your premium buy funds, incurring a 5% fund spread, then they deduct units from your fund for the sum assured.
The only reason that they do this indirect way is you get to pay extra 5% for the insurance company! hoo-ray!
I actually checked out most of the funds in those insurance company, almost every fund feeds into a larger funds that you can easily buy from a bank or fundsupermart. With cheaper sales charge, less or NO on-going fees.
Cancelling my ILP = best financial decision I ever made.
The "losses" have already been effected. The commissions had already been paid out, it doesnt matter if u surrender now or later, so do not worry over it. What matters now is your current finances. How long is this 'tight financial condition' u will expect it to last? Are u able to service the premium comfortably? If not, it might be better to choose an option to have a peace of mind.
If just had to choose one only, the higher cost option should go ILP. But please consider you have your basic protection covered first (hospitalisation and some CI) Direct insurance is a very cost effective choice.
In future you can save/invest through other more cost effective instruments.
Actually.. If you wan u can withdraw the amt frm the ILP or allow ur ILP to go on premium holiday. Tis way u maybe have some cash if u withdraw.. Else u need nt pay for the ILP n stil get coverage.
Buying of ILP shldnt be wanting to invest but as a protection coverage mainly.. So if u have other protection coverage it will be fine to surrender.
WLPs, ILPs, Endowment Policies r all designed in such a way that the insured has to pay high penalty for early termination. So surrender them only if u have no other better choices, which is what I did.
My ILP is about $500 less then my Premium Paid so far. It's been 10 years so definitely not doing well. So been thinking to surrender it. Especially since market recently down, I can probably make a better profit reinvesting into shares.
1 more comments
16 Oct 2018
16 Oct 2018
I surrendered my ILP after 5 yrs and realised a loss of about 8-9k. I made sure i switched to alternative term plans and let it run for 1 year before i stopped the ILP, to avoid situation that i need to suay suay claim but dont meet the minimum holding period. During that 1 yr i also consulted the agent who sold me the ILP.
Most Ilps will have surrender values below premium paid in the first 10 years. If you want high returns you should keep at least 20 years. Keep for 30 years to get even higher returns. All is stated in black and white in the policy document/benefits table
I would suggest that if finances are very tight, you could consider either putting your investment policy on premium holiday if possible or else you could consider surrendering the ILP.
As for the endowment plan, i would say hang on to it as the losses from the endowment plan is not worth surrendering now and if possible, do continue to keep the endowment plan on.
The above is for the policy directly for reducing losses.
However, one big consideration you need to have is why you bought these policies in the first place. If you were looking to have a sum of money at the end of 30 years, both your policies would be able to do so. If you are looking for protection, then the ILP might be a better option since ILP tends to cover the whole life.
You can drop me a PM if you need any help regarding any of the above or advice!
If you don't mind,
would need to understand/find out more on your financial position?
would like to look at the details of both plans?
So that I would be able to provide you with answers for the above no.1 & no.2.
Pls pm me to arrange, thank you very much.
Before you do anything to your policies, you may wish to review your policies first. There could be other alternatives you can take such as :
1) Premium holiday option on your ILP (however, do note that not all policies allow this)
2) Sell your endowment policies (to reduce loss option, may not be the best option)
3) Take out revisionary bonus / cash back or coupon from your endowment policies and/or existing whole life plans
4) restructure all your polciies and work on your cashflow management
5) get someone to take over your plan to pay future premium (usually relatives, if required i have some contacts who will be able to do so)
When you first committed to the $500 per month, i believe you have a certain requirement for protection on the ILP, you may not wan to surrender the policy and leverage on the low cost of insurance at younger age. (I'm not sure of your age so not able to work this out now)
If you need further advice or review the options in details, do feel free to contact me at 91292715, i'm an independent financial adviser. In case you are worried about the fees, no fees is chargable.
i cancelled my ilp about 1+ month ago. my parent bought it for me when i was a teenagaer. it has been more than 10 years and it didnt breakeven.
if you bought it for insurance, maybe you can use the money for a better plan. if you wanted it for investment, its better that you really invest properly.
Generally ILPs offer you the option to take premium holidays in such events that you are not able to pay premiums due to unforeseen circumstances. You could consider “pausing” your premium payment until your finances improve, after which you can continue saving and paying for the premiums.
There are a few things you could take into consideration before giving any of them up. Do reply with the names of the plans you have taken up so we can advise you much better.
Depending on which ILP you've purchased, it may be possible to go on a temporary premium holiday, or lower the premium per month for that matter. If you know for sure that this financial burden is temporary and would like to carry on the plan in the future, you can consider doing this.
If you die die need to give up one, then ask yourself: are you saving/investing for something in particular, and if you'd be okay to exit regardless of market volatility in 30 years. If you can take the risk, keep the ILP, otherwise keep the endowment instead. But if you definitely need that sum of money, then keep the endowment.
Or suck it up, and grit through the pain now. Enjoy the fruits of your labour later.
Most importantly, consider what are your main priorities first. If you have seriously urgent short term liabilities, then obviously neither of these plans are for you right now. Your adviser should know this, and unless you have purposely withheld information from him/her, I urge you to question your adviser as to why he/she proposed this to you in the first place.
It is obvious that one party has grossly overestimated your budget, and whether it be you or your adviser I'll leave it up to yourself to make the judgment.
I had cancelled my ilp. Cut loss from ilp , 20+%. Redeploy to other investment, estimate to recover in 5 to 6 yrs.
Note: the admin charges is relative high. Compare to monthly premium, 10-15%. Compare to each fund is like 15-20%.
i surrender 2 yrs ago which be the high of global economy.