Help: ILP Question

[ctan84]

Lately, I was digging through a file of documents and stumbled unto a Prudential file. It turned out to be an ILP I bought (& forgot) several years ago and the premiums are still being deducted monthly via giro. Yes, Im quite a blur fella and don't even realize there's a sum of money going into this ILP every mth; I kept thinking its the premium payment for my whole life plans

Would like to kindly seek out advice from you folks here whether to terminate or to continue with it? Below is the information of the ILP.

Name: Prulink Protection Plus Account
Started: End Dec 2015 (Premiums are paid monthly).
Premiums Paid: $14858
Surrender Value: $5220

Insurance Coverage Portion: $250k death/TPD/Terminal illness. $200k CI.

Investment Portion:Its supposedly a low to moderate risk portfolio. Apparently there are 5 funds being invested in: 1) 60% Prulink SG Dynamic Bond Fund, 2) 15% Prulink Asian Equity Fund, 3) 10% Prulink SG Growth Fund, 4) 10% Prulink Global Managed Fund, 5) 5% Prulink Emerging Market Fund.

The annual fund charges are as follows (according to the fund above): 0.5%, 1.5%, 1.3%, 1.3%, 1.6%.

Premium Allocation to investment: 1st year 22%, 2nd year 52%, 3rd year 82%, 4th year (currently) 100%.

Question: The loss should I surrender now would be a rather hefty sum. Im just thinking if there's any value in continuing the plan to at least narrow the loss or even break even by 1) reduce the insurance coverage portion to minimum as I have sufficient coverage with my whole life + term plans already, so this will allow most of the premiums to be retained as investment, 2) reduce to 3 funds max so that the annual fund charges will be lower, 3) switch to more aggressive funds for better returns.

What do you guys think?

 

[Lewis.T]

That's rough.

There are a few layer of costs as well. This includes a $5 charge every month, which amount to more than 1% of the amount to be invested per month, and fund management fees as you have identified.

Secondly, this plan does not serve it's intended purpose as you have no need for the coverage it gives.

This info is given as a bystander and less as an agent. I want to help you make a decision through reasoning but will not take responsibility if you regret your choice in the future if it makes sense.

 

[oceanicmanta]

Some comments for consideration

- mortality charges ... if you r in your 40s, the mortality charges will increase quite dramatically, reducing the amount invested

- reducing Insured Sum would just mean there will be proportionately less premiums (after mortality charges) to be invested ...

- are there any riders (eg crisis waiver etc) where premiums are not invested at all ?

- the bid-ask spread is a whopping 5% !

- reducing number of funds will not reduce the annual charges ... switching to lower cost funds will

- the current losses is largely due to the small %age invested in the early years as you have indicated. It could also be due to starting the ILP in a rising stock markets that have declined in the past 6 months.

- in later years, I believe upto 125% premiums are invested

- you probably need to hold this long term to see returns, consider if the premium is sustainable

I surrendered my Pru ILP last year, after over 20yrs and switching to Mindef GTL ... it's such a relief now.

There is 1 sure winner for such product ... unless insured kick the bucket

 

[ctan84]

That's rough.

There are a few layer of costs as well. This includes a $5 charge every month, which amount to more than 1% of the amount to be invested per month, and fund management fees as you have identified.

Secondly, this plan does not serve it's intended purpose as you have no need for the coverage it gives.

This info is given as a bystander and less as an agent. I want to help you make a decision through reasoning but will not take responsibility if you regret your choice in the future if it makes sense.

Thanks for highlighting the $5 monthly charge, I din even know about that sighzzz... Don't worry, I won't hold you responsible for my decisions made lah, its illogical to do that. If you think its ok to share, is this policy salvagable from an agent's pov?

 

[Mecisteus]

Just cut loss early to minimize losses.

Before that, buy some term insurances in case you need the protection.

 

[ctan84]

Some comments for consideration

- mortality charges ... if you r in your 40s, the mortality charges will increase quite dramatically, reducing the amount invested

- reducing Insured Sum would just mean there will be proportionately less premiums (after mortality charges) to be invested ...

- are there any riders (eg crisis waiver etc) where premiums are not invested at all ?

- the bid-ask spread is a whopping 5% !

- reducing number of funds will not reduce the annual charges ... switching to lower cost funds will

- the current losses is largely due to the small %age invested in the early years as you have indicated. It could also be due to starting the ILP in a rising stock markets that have declined in the past 6 months.

- in later years, I believe upto 125% premiums are invested

- you probably need to hold this long term to see returns, consider if the premium is sustainable

I surrendered my Pru ILP last year, after over 20yrs and switching to Mindef GTL ... it's such a relief now.

There is 1 sure winner for such product ... unless insured kick the bucket

Hi, thanks for the pointers, really appreciate it. Would like to clarify further:

1. Won't reducing the insurance coverage portion mean while the monthly premium is kept the same, lesser units will be sold off to pay for the insurance coverage, hence meaning more of the premium would hence be retained as the investment funds units? You mean if I reduce the insurance coverage, the absolute monthly premium I have to pay decreases too?

2. There's critical illness coverage. Is that a rider since CI is usually tagged as a rider?

3. Don't have 125% so high sighzz... For 4th (now) to 9th year, its 100% premium invested if I pay monthly or 103% if I pay annually. From 10th year to infinity (& beyond), its 105% (monthly) or 107% (annually)

4. May I kindly ask for your ILP, was it profitable after 20 years? If yes, agar agar how much % profit was it? And I assume you bought it in your 20s, hence you were only exposed to a few years of the high mortality charges that came in post-40? Is the jump in mortality charge when in your 40s really that big?

 

[ELKYme]

TS, were you 32 when you purchased this policy and paying a monthly premium of $380?

 

[oceanicmanta]

Hi, thanks for the pointers, really appreciate it. Would like to clarify further:

1. Won't reducing the insurance coverage portion mean while the monthly premium is kept the same, lesser units will be sold off to pay for the insurance coverage, hence meaning more of the premium would hence be retained as the investment funds units? You mean if I reduce the insurance coverage, the absolute monthly premium I have to pay decreases too?

2. There's critical illness coverage. Is that a rider since CI is usually tagged as a rider?

3. Don't have 125% so high sighzz... For 4th (now) to 9th year, its 100% premium invested if I pay monthly or 103% if I pay annually. From 10th year to infinity (& beyond), its 105% (monthly) or 107% (annually)

4. May I kindly ask for your ILP, was it profitable after 20 years? If yes, agar agar how much % profit was it? And I assume you bought it in your 20s, hence you were only exposed to a few years of the high mortality charges that came in post-40? Is the jump in mortality charge when in your 40s really that big?

1. I assume u pay around $5k a year for 250k Death/TPD + 200k CI.
If u reduce to 50k for Death/TPD/CI, then your premium may reduce to say just $2k a year. The mortality charges (quoted as $ per $1000 sum assured) will be proportionate to the reduced 50k cover.

If u maintain $5k premium, the extra $3k is treated as additional top-up premium for investment (which u can make anytime, dont have to fix amount or timing, note Admin charges involved per top up) ...

I am not sure if that (top-up investment) is the best move given the wide spread, charges & annual fund fees etc Usually any flexibility the insurer offers comes at a cost. Might as well DCA into STI ETF.

2. If not wrong, the CI premiums are invested as well (note: the mortality charges for CI are a lot higher than Death/TPD charges).

Are there any Crisis Waiver riders, or Medical Outpatient, Disability riders etc ? You can check online (PruAccess) to see the various components of your total premium

4. Mine was all invested in SG Managed Fund ... I never computed the returns (too complicated) but I think it did ok seeing how the fund price had performed past 20yrs (whether it beat the market or not is another question).

For reference, the CI charges are: $1.26 @35yo, $1.63 @40yo, increasing yearly to $2.67 @45yo & $4.19 @50yo (per $1k cover, per year, Male, Non smoker)

So at 50yo, for 200k CI, the charges alone are $838 per year (not including 5% spread) !

You can ask Prudential to provide the Mortality Charges table via email.

 

[ctan84]

TS, were you 32 when you purchased this policy and paying a monthly premium of $380?

Yes, except that the premium was 392 or so, not $380.

 

[ELKYme]

The $392/month pays for the following:
https://www.moneysense.gov.sg/articles/2018/10/investment-linked-policies-guide-to-fees-and-pricing

The consolation is that it would have cost roughly $150~200/month for having the same coverage that you had gotten.

If you are curious and want to know more accurately what the standalone insurance would have cost you, click “I know what I need”, input the age that you purchased that policy back in Dec2015 as well as the coverage amounts in your 1st posting. ($250k death/TPD/Terminal illness. $200k CI).
https://www.moneyowl.com.sg/#/home

To be fair to the insurance coy in your returns calculations, it should also include the insurance cost ($14858-$5220-insurance cost)...the insurance coy did provide you that coverage afterall.

Moving forward, IMHO, better to cancel this policy because:
1) The on-going charges such as fund management fee and admin fee is still there.
2) The 5% bid-offer spread will progressively get higher in $ terms due to the additional units accumulated if you were to continue.
3) The $392 can than be used to buy term insurance immediately. It’s cheaper to buy now than when you’re in your 40s (use that moneyowl link again and input your age as 45 for the same coverage to see the premium difference compared to purchasing now when you’re 35).

The only thing I like about these plans is the “forced savings” part. If the extra funds that is freed up is used to buy the latest iPhone or a nicer car, I would strongly suggest that you keep the policy though.

Maybe to replicate this “forced savings”, you can consider using the remaining of the $392 after buying the term insurance to DCA into STI ETF via POSB Invest Saver. You can see the past returns here:
https://forums.hardwarezone.com.sg/...tf-lump-sum-vs-dca-6006868.html#post119600166

Yes, except that the premium was 392 or so, not $380.

 

[McFadden]

is there a way to cover the 5% bid offer spread?

 

[ELKYme]

This spread is supposed to be for “distribution costs, marketing and other general administration expenses”.

The only way I can think of to “cover” this 5% is to pray that the underlying funds perform very well to mitigate this cost.

I highly doubt that the insurance coys would be nice enough to give up this spread, they would want their pound of flesh because the policyholder(s) have no choice as they are already stuck with this plan.

is there a way to cover the 5% bid offer spread?

 

[ctan84]

The $392/month pays for the following:
https://www.moneysense.gov.sg/articles/2018/10/investment-linked-policies-guide-to-fees-and-pricing

The consolation is that it would have cost roughly $150~200/month for having the same coverage that you had gotten.

If you are curious and want to know more accurately what the standalone insurance would have cost you, click “I know what I need”, input the age that you purchased that policy back in Dec2015 as well as the coverage amounts in your 1st posting. ($250k death/TPD/Terminal illness. $200k CI).
https://www.moneyowl.com.sg/#/home

To be fair to the insurance coy in your returns calculations, it should also include the insurance cost ($14858-$5220-insurance cost)...the insurance coy did provide you that coverage afterall.

Moving forward, IMHO, better to cancel this policy because:
1) The on-going charges such as fund management fee and admin fee is still there.
2) The 5% bid-offer spread will progressively get higher in $ terms due to the additional units accumulated if you were to continue.
3) The $392 can than be used to buy term insurance immediately. It’s cheaper to buy now than when you’re in your 40s (use that moneyowl link again and input your age as 45 for the same coverage to see the premium difference compared to purchasing now when you’re 35).

The only thing I like about these plans is the “forced savings” part. If the extra funds that is freed up is used to buy the latest iPhone or a nicer car, I would strongly suggest that you keep the policy though.

Maybe to replicate this “forced savings”, you can consider using the remaining of the $392 after buying the term insurance to DCA into STI ETF via POSB Invest Saver. You can see the past returns here:
https://forums.hardwarezone.com.sg/...tf-lump-sum-vs-dca-6006868.html#post119600166

Thanks alot for the comprehensive reply, had surrendered the policy yesterday sighzzzz. Currently have some questions on critical illness coverage, but its in a new thread since its a different topic. Was wondering if you can kindly give your 2 cents worth there too?

 

[ELKYme]

Good for you Bro. Don’t sigh, the insurers really charge a lot of fees for their ILP policies, really not worth paying these fees as there are many lower fees investments we can do ourselves and it’s not troublesome at all. Just need to make sure that the funds ($392-insurance costs for your scenario) is used for investments and not spent elsewhere on uneccesary things.

Let others answer your question on CI as I’m no insurance expert. One thing is for sure though, it is a NECESSITY if you still have financial commitments that require your income to fulfill them because the purpose of CI is TO REPLACE INCOME for a certain period where one cannot work due to sickness as there’s still on-going financial commitments (eg: food, SP bills, car installments, kids tuition...) and nothing else (treatment for sickness falls under integrated shield plans).

Thanks alot for the comprehensive reply, had surrendered the policy yesterday sighzzzz. Currently have some questions on critical illness coverage, but its in a new thread since its a different topic. Was wondering if you can kindly give your 2 cents worth there too?