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Premium Financing for Wealth accumulation plan

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Old 12-06-2018, 09:20 PM   #1
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Premium Financing for Wealth accumulation plan

What do u guys think about premium financing, where u can loan money from bank (say 70%) to pay for a single premium policy that give u monthly income?

Example: $500k single premium policy, i only need to fork out $150k, and i could get monthly income $700-800 from 4th policy year onwards, while my principle still growing.

With all the calculation, i might get about 4%-6%pa return of the principle I put in.

Any thoughts?
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Old 12-06-2018, 09:31 PM   #2
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What do u guys think about premium financing, where u can loan money from bank (say 70%) to pay for a single premium policy that give u monthly income?

Example: $500k single premium policy, i only need to fork out $150k, and i could get monthly income $700-800 from 4th policy year onwards, while my principle still growing.

With all the calculation, i might get about 4%-6%pa return of the principle I put in.

Any thoughts?

Are you are talking about OCBC PremierLife Generation? If I am not wrong, you will only break even after 10 or 12 years if you decide to surrender early.
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Old 12-06-2018, 09:35 PM   #3
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On top of that, interest rate is going up!
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Old 12-06-2018, 09:40 PM   #4
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What do u guys think about premium financing, where u can loan money from bank (say 70%) to pay for a single premium policy that give u monthly income?

Example: $500k single premium policy, i only need to fork out $150k, and i could get monthly income $700-800 from 4th policy year onwards, while my principle still growing.

With all the calculation, i might get about 4%-6%pa return of the principle I put in.

Any thoughts?
Risk free? Guaranteed? Where did those numbers come from?
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Old 12-06-2018, 09:43 PM   #5
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yup, same as GE prestige ife reward, breakeven point at 7.5 years if i do not take the cash out

Are you are talking about OCBC PremierLife Generation? If I am not wrong, you will only break even after 10 or 12 years if you decide to surrender early.
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Old 12-06-2018, 09:49 PM   #6
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like usual insurance policy, there are guaranteed and non guaranteed value. And of cos low risk cos it's not ILP.

Risk free? Guaranteed? Where did those numbers come from?
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Old 12-06-2018, 09:49 PM   #7
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yup, same as GE prestige ife reward, breakeven point at 7.5 years if i do not take the cash out
Which mean you lose 7.5 yrs of bank interest? With rising interest rate, the break even period will be even longer.
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Old 12-06-2018, 09:56 PM   #8
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What do u guys think about premium financing, where u can loan money from bank (say 70%) to pay for a single premium policy that give u monthly income?

Example: $500k single premium policy, i only need to fork out $150k, and i could get monthly income $700-800 from 4th policy year onwards, while my principle still growing.

With all the calculation, i might get about 4%-6%pa return of the principle I put in.

Any thoughts?
If it was done in the post GFC of 2009, it would be good. But now, in a rising interest rate environment, the cost of leveraging would reduce your returns.
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Old 12-06-2018, 11:58 PM   #9
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What do u guys think about premium financing, where u can loan money from bank (say 70%) to pay for a single premium policy that give u monthly income?

Example: $500k single premium policy, i only need to fork out $150k, and i could get monthly income $700-800 from 4th policy year onwards, while my principle still growing.

With all the calculation, i might get about 4%-6%pa return of the principle I put in.

Any thoughts?
It's not a great deal. The ways it can go wrong:
  • You lose if interest rates go up. You're borrowing at a floating rate, to invest in (basically) bonds; if interest rates go up, you'll pay more on the loan but the underlying asset will be worth less.
  • You lose if you need to cash out early. As people mentioned, you don't even hit breakeven for ten years or so! That's an awful deal; if you just bought some Singapore government bonds instead, you'd break even basically immediately.

And you're losing because you're paying huge fees - it could work out to as much as 10% on a policy that size, counting the leverage; paying a hefty interest rate on the loan; and you have to hope that the income from the policy is enough to cover the interest payments.

I think this is a bad idea.
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Old 13-06-2018, 12:22 AM   #10
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It's not a great deal. The ways it can go wrong:
  • You lose if interest rates go up. You're borrowing at a floating rate, to invest in (basically) bonds; if interest rates go up, you'll pay more on the loan but the underlying asset will be worth less.
  • You lose if you need to cash out early. As people mentioned, you don't even hit breakeven for ten years or so! That's an awful deal; if you just bought some Singapore government bonds instead, you'd break even basically immediately.

And you're losing because you're paying huge fees - it could work out to as much as 10% on a policy that size, counting the leverage; paying a hefty interest rate on the loan; and you have to hope that the income from the policy is enough to cover the interest payments.

I think this is a bad idea.
the banks are smart, trying to lock ppl into the lower interest rates for 10 over 20 years.. while they earn the difference later on at your expense
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Old 13-06-2018, 09:00 AM   #11
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thank you all for the kind advice!
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