As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

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Monday, 8 February 2010

Shocking Discovery On My ILP

Previously, I bought XXX,XXX units of Global Balance Fund under single Premium ILP using CPF OA for protection and global exposure.

One day, I was shocked to discover how ILP works.

ILP is actually consists of two parts:
  • Protection part
  • Investment part
For the protection part, every month the insurance company will sell XX units with sale charge in the Investment part to pay for the monthly premium. The monthly premium is a fixed amount and increases slightly every year with age so when the unit price is higher; lesser units are sold. When the unit price is lower; more units are sold. At the end of each month, ILP's Investment part will hold less remaining units than before after payment of monthly premium.

This has very serious implication in the bear market. During the bear market, more and more units in the Investment part are sold to pay for the monthly premium for protection; but when the bull market returns, too bad you will have lesser remaining units in the Investment part to profit from the rising unit price.

I finally woke up and realized how the protection part was rapidly eating into the remaining units of the Investment part and can seriously deplete the investment value over multiple bear markets. So I bite the bullet and terminated the ILP at loss.

So my advice ...

1. If you do not have any ILP, do you really want to buy?

2. If you already own such policy, you may want to review it.

1 comment:

  1. Thanks CW8888 for your sharing.

    Indeed a single premium ILP might seem like a really bad deal. But I guess that is part and parcel of it =)

    Imagine if the stock market go up...you will be thinking that this ILP is good..ha

    Liquidate it and invest it yourself since you are doing so well investing your own funds. =)

    ReplyDelete

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