Wednesday, February 10, 2010

Is ILP a time bomb?

So I read Lorna Tan's article on investment linked plans (ILPs). (This was posted on another blogger's blog)

Then I saw this adword advertisement by Wilfred Ling that reads: "Is ILP a Time Bomb."

I guess the argument goes as this:

As one ages, the insurance charges creeps up slowly in an ILP. Up to a certain age, the insurance charges might be much more than the premiums one is putting in.

YES IT IS A TIME BOMB!!

If you do not know what you are doing with an ILP, I guess it is a timebomb. Afterall, MAS has recently announced that it wants a stricter environment to guide the sales of ILPs to commoners. Insurance agents would have to make sure that clients who buy ILPs have the necessary education levels or experience in investing before they can buy ILPs. Great move if you ask me. (But isn't the reason why ILPs were created being that people have no idea how to invest their own money...that is why they chose to buy the ILP in the first place!)

An ILP is a time bomb and you much watch the timer very closely. Make sure that you know what are the annual charges for insurance ESPECIALLY once you cross certain ages like 40, 50 or 60. If there is a need, decrease your insurance coverage. Afterall, your insurance coverage requirements should drop as your children become financially independent and leave home.

Some people might not hit the time bomb as they might have already drawn out all their money for retirement purposes or decrease their coverage correspondingly.

No, it's not a time bomb =)

This is me saying it cooly with a swagger. I always feel that if you know what you are getting into, it is not a time bomb.

Afterall, most investments are bombs on timer mode. It can be your stocks, REITs or landbanking.

You need to watch that bomb closely and make sure you release it before the bomb explodes in your lap. As someone said: "Watch your basket closely..."

A stock listed in the stock exchange might be de-listed after the directors run away (think China Print and Dye listed on the Singapore Stock Exchange). REITs might also go bust anytime if they are not able to borrow money.

The fact is this:"Every investment bears a certain risk, even putting your money in a bank involves certain risk"

So What is The Alternative?

So if ILPs are really time bombs, what other alternatives do people have to protect themselves?
What are the alternatives?

I have listed down a few alternatives:

1. Term insurance
2. Endowment plans
3. Whole Life plans

Well, all these instruments are also time bombs if you look at them closely. So the best thing for one to do is to watch your bomb very closely.

Maybe that's why we used to play the pass the parcel game at birthday parties last time.

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