Investment Linked Policies (ILP)
Asked by Anonymous
Asked 2w ago
Bought one since 2009, from a Friend whom has left the industry. After reading so much about ILPs and how terrible they are, I start to question what I should do with it. The intention of buying was and still is to cover it as a WL policy (in case of death and whatsoever) and I have some medical issues after that so this IPL is the only one with no loading and exclusions. Is there anything I can do to remove the investment part to make a pure protection plan? Or any good suggestions? Thanks!
ILPs are not meant to be used as a WL until the investment units can cover all the fees and increasing COI. Its is best that you understand the product features (which includes all the fees required to be paid yearly, which may include polic admin fees, investment fees etc etc). There are two ways to do this.
(1) Maintain the minimum to ensure it does not lapse. However the cost of insurance will climb by age 45 and is crazily high per $1000 coverage, so it may make sense to either drop it and self-insure by age 50 (which is the reason to maintain the account above your sum assured to remove the COI, but if that happens, it is essentially self-insured so....)
(2) surrender once there is no surrender charges or when the COI is too high to be serviced. This is totally dependent on you, but my rule of the thumb is if the coverage is 1% of coverage, might as well self-insure through your own means due to rule 72 + a few more years to accumulate it as your own emergency fund.
Always do your calculations, be satisfied with your objective.
You can increase the sum assured to the highest allowed on the policy and opt to increase the premiums as well. Do call in to Pru to get an idea of all your options.
Do note that the downside of treating the policy only for it's protection element is that the increasing Cost Of Insurance has to be maintained. This means constantly topping up premiums every year after age 60 or so to maintain coverage.
The point was to have your investments at this time be able to pay for your increasing Cost Of Insurance.
So if you aren't going to do that within the policy, you have to make sure to do it outside the policy with your own investments.