Investment Linked Policies (ILP)
Asked by Anonymous
Asked on 18 Oct 2018
Bought a 15 year Prudential plan thru a bank and started paying for 2 years. The intent is to invest n save. However Just read up more about insurance knowledge through Seedly and found that the real return of the plan is 2.5% instead of what the agent claim as projected 4.75%. And there is non-guaranteed amount too. Hope to know from the community and awareness about insurance and investment and whether should I surrender the plan?
Top Contributor (Sep)
An endowment plan pays you a yearly Reversionary bonuses that once declared, becomes guaranteed from the performance of the participating fund you're investing in.
And ILP would mean you're investing into Unit Trusts and your policy will have a fluctuating Net Asset Value. They're typically more flexible and you can achieve much higher returns than endowments at the cost of having no guaranteed amount.
You should calculate the non guaranteed amount as part of the policy as it is rare that an insurance company would declare lesser bonuses for the year due to the smoothing of bonuses effect.
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on 20 Oct 2018
Endowment plans, in layman terms, can be considered as setting aside a sum of money for savings. The goal is to help you save over a no. of years.
Investment-Linked Policies, or ILP, is setting aside the money for investments, specifically, into unit trusts, while keeping a portion for insurance.(They either sell units to pay for insurance, or part of your premiums paid is spent on insurance.) Newer version allows you to deploy 100% into investments. As they deal with investments, past performance does not indicate further results; and there is always a possibility that you may lose your capital.
For both endowment and ILP, they have guaranteed and non guaranteed figures. Guaranteed figures are guaranteed, ie, you will definitely receive it when the plan reached maturity. However, this is where the differences lie.
As ILP uses the premiums to invest, chances are, there is little/no guaranteed figures. The non-guaranteed portion can be higher as they may get higher returns.
Endowment uses the funds to deal with lower risk products. As such, the % returns are generally lower.
As to whether you should surrender, there are a few things to consider.
a) what protections are you giving up,(if any) when you surrender the policy? Can you buy a substitute, e.g. Term life, whole life, etc.
b) are you good at investing? Are there strategies you can use to invest, e.g. DCA(Dollar Cost Averaging) on an index funds, stock picking, property selecting?
Hope this helps. If in doubt, just ping me or the commmunity.
on 20 Oct 2018
Hello, actually it is not advisable to comment on whether you should surrender the plan; especially if we are licensed representative. This is to prevent another agent/adviser to missell you another product. However we can highlight the important factors for you to decide.
Point 3 should used in any finanical planning at all times.
Additionally, if you bought your plan based under the impression that it will give you the return of the projected figure 4.75%, you may approach the bank to confront on this plan or raise a case with MAS and FIDREC. If it is proven that there's a breach, they will return you the money, or accord you the claimed returns.
In my personal opinion, I do not calculate 100% of the non guaranteed amount as there is incident (in the past) that bonus is not being paid. Therefore, I do kinda of agree of the calculation found, https://blog.seedly.sg/guide-basics-endowment-plan/
usually I will give a range as we should never guaranteed the non guaranteed amount.
As for ILP, it is an investment plan however it does not invest into unit trust directly (common misunderstanding) . The correct defination - ILP is invested into sub-funds which may feed different assets (fund trust, etf through a fund house). This is documented under Product Highlights Sheet. The attached images are how a Product Highlights Sheet may look like.
ILP has its own advantages & disadvantages however it does not suit everyone. If you are solely interested in investing assets such as unit trust, you may open an investment account to direct invest into it.
In the meantime, if you have any question(s), you may drop me a message via facebook. Wish you all the best.
My advice is simple. Go confront the bank who sold you the product claiming 4.75%. If you were misled into thinking that the returns are 4.75%, you can also raise a case with MAS and FIDREC. You don't need to pay anything for this. The banks will have to pay instead. They will deliberate the case and determine if there's any breach. If there's a breach, the company is required to either cancel the plan and return you the money, or accord you the claimed returns.
Even if it doesn't work out in your favour, the bank has at least lost some money from the hearing. Give them more work to do, keep them on your toes, and learn from this scam.