There are two parts of this strategy. First, maximise the accumulated benefits of investing "early" (or create a situation to make it behave that way) which is what ILP is good at. Second, move insurance components into a term insurance, and cut down unnecessary insurance items. This post will address the first part only.
My agent had been very accomodating to my requests to generate many benefit illustration documents and answering all my questions about whether the ILP rules allow me to make the adjustments. Thankfully, the plan is quite flexible.
Step 1: Reduce all insurance coverage to the bare minimum to keep the essential riders alive. I actually just wanted the PruSmart Lady benefit for the free health check up. (Ok, it is quite silly thinking back now that I bought an ILP because I expect health check up prices to go up in the long term, but it may not be all that bad if you read till the end of this post!)
Step 2: Calculate how much sales charges have been paid out. As I had paid three yearly premiums, I had paid majority of the sales charges, so if I can still afford the premium, it does not make sense to reduce the premium because I will be effectively locking in a loss. Separately, when I reduce the premium from $2,699 to $1,200 (the minimum), there was insufficient runway to accumulate the investment returns. As such, I had to create a runway for myself by investing more every year to make up for the "lost" years.
Summary of projected cash values look healthy at the age of 95 years old. As I always think of worst case scenarios, I need to calculate break-even values for everything. A 3% yield will break-even at any age.
For those who prefer graphs, the points plot out the growth for various projected yields and if you count the lines, anything 4% and above is good, i.e. if I surrender before I check out of earth, I will be able to get my capital back, and my death benefit coverage could be deemed as "Free".
All yields and calculations displayed exclude sales charges and admin fees.
This is a landmark series in singapore finance blogs. :)
ReplyDeleteI may not fully agree with your choices. Regardless, the considerations and investigations done place this as amongst the most balanced befitting the topic.
Thanks, I will be reading up on other investment products and asset classes as you have advised. Another assumption I made is that Prudential will continue to incentivise its agents with high commissions to secure a constant supply of new ILP customers who will continually buy into the Singapore Growth Fund which my ILP is buying into at the moment, regardless of market conditions. Funds from a public brokerages may not have such an upside.
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