Financial: The useless ILP, and how to go about terminating it

Have you previously bought for yourself or your loved ones investment-linked policies (ILPs)? Well, on the surface such instruments put forth a rather enticing proposition: secure substantial insurance coverage, at the same time have funds funneled into unit trusts to grow your nest egg. But the somewhat fuzzy manner in which things actually "work" behind the scenes typically means you the client will in all likelihood be shortchanged despite your best efforts to be discerning. It shouldn't come as a surprise; after all, actuarial science is a notoriously sneaky slimeball exploited to benefit an insurer's bottom line first and foremost.

Let's discuss a real life case (yes it happened!) in which an individual in his thirties who until late September 2017 has been contributing a not quite insignificant monthly premium of $215.66 towards a $200,000 sum assured ILP offered by a well-known international insurer. Having done so for the past eight years plus since June 2009 (which therefore spans a duration of 12 × 8 + 3 = 99 months), he would have forked out a total of $21350.34. The bloke finally came to his senses and decided to cut his losses after much deliberation, so he surrendered his policy and received a cheque for an amount slightly less than 16k. How much did he throw down the drain altogether? A whopping five thousand dollars plus change! Utterly shocked? You should be. In a nutshell, here are the main reasons why the purchaser of an ILP will almost surely be at the losing end of the deal:

Your premiums are used to pay for a lot of crap other than for actual investment purposes

In the initial years, chunks from your premiums are taken to cover distribution costs, with the remaining funds (obviously no longer a 100%) being used to actually invest in unit trusts sans typical 5% sales charges. And then there are insurance charges incurred alongside policy fees which are deducted by selling away units on a monthly or annual basis. As one ages, insurance charges soar, not in a linear fashion mind you, but in an exponential one, which means the scenario where the units held in your policy end up being completely sold away just to account for these costs can arise, and you may even have to fork out extra monies to top up for the outstanding shortfall. In a nutshell, you could become a very unhappy holder of a policy with zero cash value, and still have to burn cash for continued insurance coverage in your twilight years.

Unit trusts can hardly be trusted to deliver consistent returns on investment

There are actually plenty of extremely lousy fund managers around, and with glitzy complicated sounding names (assigned to them unit trusts) being dangled out there in the vast wild wild west of financial markets, you will never really know if you have chosen to step right into a pothole. Instead of getting slaughtered unwittingly at the hands of nincompoops who don't quite know what they are doing, why not have a little faith in yourself, read up and become your own personal trader? Stop giving yourself tragic excuses like "its too difficult" or "I do not have time to manage portfolios by myself", because the road to achieving financial freedom is never an easy one. JUST DO IT ALREADY.

Insurance agents are incentivized to peddle ILPs to you because it earns them fat commissions

That's right, these largely slick-tongued, uncaring bastards want you to sign on the dotted line because when you do, they will surely be laughing their way to the bank. For a client contributing a monthly premium of $500, they can expect to be compensated approximately six thousand dollars! Congratulations for getting a raw deal, and placing them a step closer to being able to afford their dream Maseratis and Porsches.

Bottom line? If you were unfortunately lulled into buying an investment-linked policy, TERMINATE IT ASAP. THE PROCESS IS VERY SIMPLE AND WE SHALL RUN YOU THROUGH THE STEPS.

1. Proceed to the insurer's main customer service centre to surrender your ILP

Don't waste time ringing up hotlines and enquiring about the termination process, because they will surely bug you with instructions of having to fill up and submit various forms by mail. Then again you might already have misplaced the original policy document along with all associated account information at some point in time - so obviously it will be a real pain to thoroughly recollect everything. Show up directly at the customer service centre and announce your intention (of proceeding with a full policy surrender) to the CSO attending to you plain and simple.

Upon presenting your IC to him/her for identity verification, he/she will proceed to retrieve your existing subscription(s) from the database - easy peasy lemon squeezy, no sweat at all. The necessary paper work will be filed right in front of you, which typically takes approximately 20 minutes. Place your signature on a couple of stuff to indicate approval of the surrender process, and that pretty much settles things.

2. Wait to get paid

If your ILP has accrued cash value, you will be paid that amount less any processing fees or penalty charges incurred (depending on insurer). Either opt to have a cheque prepared which you can subsequently swing by to collect at your convenience, or request that the funds be wired directly to your bank account upon release. In any case, expect to receive the money anywhere between a few days to 2 weeks.

What happens next?

Getting properly insured for a peace of mind is still very important, just that it should be kept entirely separate from investment ambitions. So go shopping more once for fresh protection, however be more prudent when making decisions - remember: once bitten twice shy. Our highly recommended purchases? A term plan with critical illness coverage, plus an integrated hospital shield plan. We are fairly confident you won't be paying through the nose this time round.

Need a more detailed explanation with regards to how a private integrated shield plan works? THEN READ THIS.

Remember, procrastination can be fatal. Take immediate charge of your finances, and always stay safe. Cheers to your health, wealth and future.

Note: This article was written for purely informational purposes. Domain of Singapore Tutoring Experts is not associated with any private insurer, nor does it specifically endorse a particular insurance product sold by any such private insurer.