AIA Achiever - Good or Bad?

In my previous article, I compared an endowment plan with an ILP. Many might think that an ILP is a silly way to save for my child's education. After all, there are much superior ways like "Buy Term Invest the Rest".

Today, I will share with you my personal experience with one ILP that led me to be a little more accomodating towards ILP amidst the anti-insurance stance taken by most people.

AIA Achiever

I bought the above mentioned plan some years back. I believe that it is no longer in the market. Some insurance agent sold it to me as an investment plan and conveniently left out some important details about the "downside" of this policy.

Anyway, for the first few years, I hated the plan. I thought that it was the worst plan that I could have gotten. Afterall, I had to pay premiums for 7 years before I could withdraw the amount out. (When I bought the plan, I thought that I could withdraw the money out once the policy has been incepted for 7 years)

I was really thinking of surrendering the plan very early on as I felt that the 7 year waiting period was simply too long and I could put my money to better use elsewhere. However, the high surrender charges before 7 years made me think twice.

In the end, I continued servicing the plan and recently, I just crossed 7 years of premium payment.

What I Like About Achiever


Now that the 7 year waiting period is over, I have discovered that I actually do LIKE this ILP. When I look at the amount of money inside, I am amazed that 7 years of consistent saving have actually yielded me with results that I am quite pleased. I took up this plan as a means to fund my retirement. It has served me well thus far and the actual cash value is much higher than that shown on the benefit illustration for 9% compounded annual returns.

In addition, I get to log into AIA eCare easily to check on my monthly statements and can do my fund switches easily too.

What I Don't Like

It is of course obvious that there are aspects I do not like about the plan. Here are a few:

1. Policy charges every month.
2. Supplementary benefit charge based on face value of policy. This is payable for 10 years.

However, when I consider this to any endowment plan or whole life plan, I find that it suits my overall portfolio very well. It gives me the necessary protection and savings.

Would I have done things differently now?

I am still torn between the "Buy Term Invest the Rest" strategy and the other whole life approach.

If I had bought term insurance and invested the rest using something like the Share Builder's Plan by Philips Capital, I might have gotten higher returns. I might also have gotten worst returns.

If I could turn back the hands of time, I seriously do not know whether I would have bought this plan.

I know many people have complained about the bad returns or low surrender values from their ILPs. I am perhaps the minority that have actually sticked through with my ILP instead of surrendering it. As such, I now see the "fruits" of my labour. It gave me a disciplined way to save for my retirement and gives me protection as well.

Endowment versus ILPs for Education Fund

Over at another blog, we had a discussion on the chatbox whether an endowment or an ILP would serve better as an education fund for our children. I personally chose an ILP to save for my child's education so I will be harping on all the good points about it here. Nevertheless, I will try my best to give a fair comparison in this piece.

An endowment policy and ILP are quite different in nature.

An endowment basically provides coverage / insurance protection only for a term (e.g. 20 years) and gives back money at maturity. This maturity cash amount comprises guaranteed and non-guaranteed components.

An investment-link plan (ILP) provides lifelong coverage (up to age 99 years actually) and also allows you to draw out money as long as you leave a certain minimum sum within. There are NO guaranteed components.

As a basis for comparison, I have chosen to look at the following factors (these were actually the considerations I had when I decided to get an ILP over an endowment):

1. Protection. In terms of protection, an ILP trumps the endowment hands down. For the same amount of premiums, I can get a much higher protection for death, TPD and critical illness for my child. In addition, while the endowment protection amount is fixed throughout the policy term, you can vary the protection requirements for the ILP.

2. Premiums. When I look at premiums wise, an endowment actually allows you to pay lesser in terms of premiums because most (if not all) ILPs require a minimum $100 per month in premiums. Of course, we know that saving $100 per month for your child's education would most probably be never enough to afford a university education 18 to 21 years down the road.

3. Waiver of premiums. Nothing to compare. Both plans allow riders to waive future premiums should both parents become critically ill, die or get TPD.

4. Premium Holiday. This is something that was important to me. If I am not able to afford the premiums due to a change in job, etc, I needed the flexibility to go on a premium holiday. An endowment does not allow that (correct me if I am wrong). For endowment, the premium holiday period is treated like a policy loan on the existing cash value. This interest can range around 6% interest.

5. Emergency Withdrawal of Cash. The ILP allows me to draw out money from it as long as a certain minimum sum inside (usually $1000). For an endowment, withdrawal of cash before maturation of policy is considered a policy loan (at the interest rate of around 6%).

6. Returns. The endowment will give GUARANTEED plus NON-GUARANTEED returns whereas the ILP only gives NON-GUARANTEED returns. In illustrations, the ILP always shows higher absolute returns because of the 5% or 9% returns showed compared to the endowment 3.25% or 5.25%.

CONCLUSION

To me, the only advantage that an endowment has over an ILP is this thing called the GUARANTEED component. In terms of all other factors, the endowment loses out to the ILP.

I can choose to surrender my ILP in one lump sum when the 20 years are up or I could slowly draw down the amounts in the 20th year, 21st year, 22nd year and 23rd year or I can don't draw out the amount (maybe my child does not make it to university at all)

Some argue that if the market is not doing well when I need the money, the ILP will fare badly. My strategy however is to increase the allocation in bond and fixed income funds as the date draws closer to my child's entry to university. Even so, I can chose to withdraw the funds over the 4 year period and hopefully the market recovers correspondingly.

THINGS TO NOTE:

Please do not take this as an advice or recommendation to buy an ILP for your child's education fund. The reason why you buy it is more IMPORTANT than which to buy.

For me, I have paired my ILP with a POSB Kids Savings account. So in that sense, the "guaranteed" component will come from the money in the bank account.

Also, my primary reason for buying the ILP is for PROTECTION and not savings. (Okay, maybe about 60% protection and 40% savings). That is the reason why I chose an ILP over an endowment as it gives me better protection. I did not consider term insurance as I wanted a plan that would guarantee the insurability of my child even after his university (if he chooses to continue with the plan)

Lastly, I think I know what I am doing. The most important thing is to know what you are doing with what you have. Only time will tell whether what I have chosen is a wise decision when the time comes for the money to be withdrawn. I'd like to think that I have got a strategy in place.

P.S. I know Mr Tan Kin Lian (ex-NTUC Income CEO) is a strong opponent to ILP and advocates a "buy term invest the rest" strategy. While I can agree with his argument intellectually, I find it hard to execute a "buy term invest the rest" strategy. These are due to practical reasons, emotional failures and psychological thinking. But this is better left for another posting.....

10 Things to Do With Your CPF (Part 2)

So I started a post on ten things you could do with your CPF. And I listed down one of the things that you could do was to buy your own housing.

Here is a list of the other 9 things you could do with your CPF

2. Purchase hospitalisation plans to enhance your basic medishield coverage

3. Purchase the home protection scheme which provides coverage for outstanding mortgage loans.

4. Transfer money from your Ordinary Account to Special Account to enjoy higher interest rates.

5. Top up your special account (SA) with cash.

6. Contribute to your retirement account (RA)

7. Invest your money in your CPF-OA and CPF-SA

8. Use CPF to pay for child's education

9. Nominate your CPF monies to your dependents

10. Sign up for CPF Life if you are age 55

10 Things to Do with Your CPF

I originally had in mind to title this post: "TEN CRAZY THINGS TO DO WITH YOUR CPF!"

But then I decided against it and thought that the things I were going to pen down were not so crazy afterall.

Singaporeans and Singapore PRs seem to have a love-hate relationship with CPF - the nation wide compulsory savings scheme that is supposed to meet their retirement needs and medical bill needs.

Of course, the number of CPF accounts have increased over the years and the things we can use them for has also increased significantly.

Nevertheless, we are a nation of complainers and we JUST LOVE to COMPLAIN. The key trait when you meet a Singaporean is to find him complaining about something. He is never satisfied. If the government were to abolish CPF this very day, I am sure huge sections of the population will also begin to complain: "Why no CPF???"


Is CPF Good Or Evil?


Almost everyone I seem to know thinks that CPF is evil. They find that their money is stuck and that they can't put full use to it. They feel that they are able to generate better returns compared to the guaranteed returns that CPF provides. Some of them feel that the paltry interest rates provided by CPF is not able to beat inflation rates. (This same people complain about the paltry interest rates provided by the banks).


On the other hand, there must be a reason why CPF was introduced. There surely must be some good to it. It has provided a means whereby Singaporeans and PRs are able to enjoy affordable housing. It forces people to set aside money for their retirement and medical needs. The best brains in the government obviously feel that CPF is a scheme that is both necessary and good for the entire society.


How can CPF possibly be good and evil at the same time? Clearly there must be something good about CPF that some people see in it. Or is CPF really bad and should be abolished altogether?


I LOVE CPF


The above debate is not for me. I love CPF and enjoy the benefits that I get. To me, it is another bank account for me. The only thing is that I cannot touch the money for sometime. Yes, the rules change here and there, but overall, it is still MY MONEY.

I know I am supposed to list 10 things You can do with your CPF...

Okay, here is my no.1 thing you can do with your CPF:

YOU CAN USE IT TO PAY FOR YOUR HOUSING!!

I have never used a single cent to pay for my HDB flat thus far. My CPF settles every single cent of it. That is one amazing thing you can do with your CPF. Use it to pay for your housing!

If I did not have CPF, I am not so sure that I would have been so disciplined to set aside that sum of money. I might very well have spent it all on a trip to Europe, bought a bigger car, or God knows what...

I also enjoy low mortgage interest rates at 2.6% which is the HDB housing loan rate.

Over the course of the next few days, I hope to continue to share on some of the things you can do with your CPF.

CPF Interest Rates Are High

It seems to me that CPF interest rates for the SMRA is very high. Currently, it stands at potentially up to 5% because of the additional 1% interest that the CPF Board is giving.

Checking my CPF statement lately, I realised that I received closed to $900 in interest for my Medisave Account alone!

That got me thinking into whether I should voluntarily top up my CPF account as this would give me a guaranteed 5% returns (at least till end of this year I hope).

The downside is that I would not be able to draw out the money should I top it up.

What do you think?

This Blog Reaches 1,500 Unique Visitors per Month

I am glad of the progress I have made with my blogging efforts. Since starting in May 2008, I am glad that I have gotten to know a few of the bloggers and commenters better over the years.

I am also glad that this blog serves 1,500 people a month!

That is alot of people that I am reaching out to which I would never have been able to done with a normal job! Unless I am a pastor of a mega church or something....

To reach out to so many people, to be communicating with them and to be able to at least share with them my lessons and experiences is indeed a HUMBLING thought.

If you are one of these 1,500 people out there who is reading my blog each month, I would like to say a big THANK YOU for supporting me throughout my journey towards financial freedom.

This has been a very difficult period in my life. Unemployement, job search woes, rejections from potential employers.... If I could feel any more depressed, it is NOW.

Yet, it is also the BEST time of my life. I have never been so free in my entire life. I can spend the day thinking about what I would like to share with my readers. I can observe things moving by slowly. I also cannot explain the joy that I get when strangers come and leave encouraging words to me. Thank you.. Thank you..for all the kind words, encouragement, and even recommendations on the way forward. I guess I can never thank each one of you enough =)

Afterall, each of you do have your unique experience to share with me and I must say that I am a lot WISER today because of your sharing. If this blog was just a private journal that I wrote and kept somewhere at home, I would not have grown so much as a person.

So my job search carries on....

With each job rejection comes more pain but I guess I have to keep on fighting to move ahead. Failures are part and parcel of life. I also have to trust in my God that He knows what is best for me and my family.

A Jobless Millionaire and the Rich Bloggers

So I was thinking that the difference between a millionaire who is jobless and a thousandnaire who is jobless is quite profound. A millionaire who is jobless will never be called a bum.

Anyway, I have never really considered myself jobless. At the very least, I am a blogger! And people do make a living out of their blogs. It is just that I can't make a living out of my blog but that doesn't stop me from being jobless or stuff. I have a good readership and a wonderful community of supporters out here.

So to say that I am out of a job, the correct phrase should be "I am seeking paid employment". My job at this blog is paid peanuts but it gives me great joy. I am the CEO, marketing executive, editor, journalist, corporate comms person all rolled into one.

Talking about blogs, some bloggers are really able to enjoy a good life because of the quality of their blogs and the followership that they have. I would just term it as the Rich blogger and Poor blogger divide that I am trying to cross over to. Rich bloggers are also jobless like me...except that they are earning money from their blogs.

That was lunch for today. I ate only at 3 pm as I wasn't too hungry. Char Mee (instant noodles) home-cooked style. I know it looks real plain but it was super delicious.