Wealth Plan / Retirement Policy - what to do?


#1

I was doing a preliminary update of my balance sheet. The retirement policy which I pay 9k of premiums per year turned in a YTD return of -12.87%.

It is worse than any of my own portfolios. Should I be glad I am doing better than “professionals”?

The policy matures in 2039… I have been having thoughts of terminating it although that would mean probably losing four years of premiums to date, but thought maybe it would turn around. At the moment, I kinda of just hope it could deliver returns of 4% pa, but not anymore… Sigh…


#2

Is your policy something like an Investment Linked Policy, ILP?
I personally would have preferred term insurance for my life insurance and have a separate portfolio for my investment, regardless whether it is self managed or managed by professionals.
If i am not wrong, you will be locked into several years that you cannot withdraw. That’s the toughest part for me.


#3

now that i think about it… on face, it is buying unit trust monthly, but with a “death protection part”. it might be an ILP, although my advisor would disagree lolz.

yes locked in for another 21 years till 2039… argh. i worry that it gives me less than 1% return per annum on withdrawal


#4

Can be so negative? Don’t they all have guaranteed sum for every year of premium paid?

I also have a similar one that I bought when I was still a student hence just 100 a month and it gives 80K (Cancer) + 80K (death) and if want to withdraw in the end got some min guarantee amount (about 3-5% yield) that I cannot remember (speaking of which I should maybe have some feature for people to input all the insurance policy details in StocksCafe as I can never remember them all).

If you have something like mine, then I am inclined to suggest just keep loh.

Reasoning being while logically, we should ignore sunken cost and compute which is better financially but it is extremely hard to do so since nobody knows the future hence it is at best an educated estimation.

However, if you cancel it now, you will 100% lose an decent amount plus no more coverage which you need to buy another insurance to cover. Feels more emotionally painful.

Disclaimer: Maybe mine was a easier choice since it was only 100 a month.


#5

There was guaranteed death benefits based on premiums alone but the surrender value was based off the unit trusts.

Sometimes I do think abt just ending this policy and putting the premiums to CPF / SRS instead. The tax reduction alone will prob recover the “losses” over a few years. Its a thought


#6

Sounds like you have a clear plan. Then why not? What is holding you back?


#7

TS,
I agree with Evan => just go ahead and do it. Look forward and forget about the sunk cost if holding it is very likely to make the future worse.
The other is to ask your insurance agent to prove to you that it is better to keep it than cancel it … in case there is something we are not aware. I believe he will have the incentive to ask you not to give it up.
I have a friend in the same state as you … in the end, he is keeping it because of the insurance element. He has a few chronic health in the last few years and other insurance companies are not keen to take up his coverage.
Hope the above helps.
Regards,
Warriortan


#8

Evan you are right. It looks more and more like an ILP. I thought about the risks, so that readers and users can check for themselves as well on similar policies.

  1. Friends Provident International, has changed owners I think at least twice during my plan tenure. Management has changed also quite a few times. I believe the most often stated reason is that the business is loss making. I googled and I believe it is recently starting to trim its people.

At the moment, my greatest fear is this company will not exist in 2039 when the plan matures.

  1. I need to run a more in depth check, but I do not recognize its holdings as at Dec 2018 (vs last year) - maybe a good or bad thing as it was heavily into FAANG last year.

The tenure to date returns were:
2015: about 10% for 1 yr
2016: about 12% for 2 years
2017: about 18% for 3 years
2018: about -2.5% for 4 years

Ie its 2018 returns was probably - 20.5% and majorly in Q4, and if not mistaken mostly in December alone.

  1. list of fees:
    Unit bid-ask spread: 8.5%
    Monthly plan (admin) fee: 1% of paid premiums

Quarterly charge: 1.5% (seems more) of the first 18 month premiums. For 2018, the deductions added to $1024.2. ??!?? This is 11.3% of one year premiums.

I think the quarterly charge is the killer. For a 25 year plan, a 1000 charge = 25,000 = almost three years of premiums.

I can start to see why it wont give me any returns. Before investing, 21% is already lost through fees and deductions.

I think the wise thing is to terminate the plan and save 21 years of premiums = 189,000.
If I put the 9k into CPF SA top up and SRS instead, I get tax relief, and at least 4% guaranteed interest.

Omg… Estimated surrender value = 2 years worth of premiums, so my loss will be 18k or so for signing on an ILP. Well I am still breathing. I already have two life policies. I really dont want to sign up for more - one I dont really trust the insurer to pay the claim on death, two there is an ever increasing risk that insurance companies can go bust. Some are really not that credible, especially if they are sold as they are “loss making”.


#9

I see. Never heard of the company before.

Assuming whatever you found and analyzed are accurate, you should terminate it ASAP!


#10

I support terminating it


#11

Thanks EK and WT

With a fresh pair of eyes, terminating this ILP is the right thing to do.

The ILP in its true form:
About 76% of the first 18 mths (initial units). (and its promo free units) is held back as insurance premiums payable on 101% of the total unit value if I die within the 25 years. The premiums are deducted at 6% of the initial units each year (front loaded premiums). If I dont die, then this 10,300 (before free units) is the total premiums it will get. I didnt get this policy for the death benefit coz I have other life policies. In any case this 10k is sunk cost for a useless death benefit.

Basically this is like buying unit trusts, except
a) the chosen underlying fund is given a rating of “Below average” by Morningstar,
b) the fund’s total expense ratio is 2.7% (almost double of the CPFIS standard of 1.5%)
c) the fund manager has consistently underperformed his benchmark even by buying index funds
d) I think there are trailing fees (8.47%) on the value at time of redemption
e) the fund is on the Isle of Man (tax haven with shady deals) and is now denominated in GBP.

I used to play unit trusts, so based on these factors alone I already do not like the fund, it forces me to think about currency and a whole lot of indexes which I really am not interested to follow. Besides when I played unit trusts, I also do buy / sell when analyzing trends and peaks. So being locked in for 25 years with a forced outflow is really not cool.

Apart from the total expense ratio (2.7%) and 1.2% admin fee, LOLZ, seriously if I take the 750 monthly amount to buy SGX on BCIP, my cost is about 5.04 or 0.67%. Cost wise I beat this hands down as there is no annual managment fee and blah blah shit.

Even if I consider the alternative of putting the 750 monthly to SRS and buy SSB at 2% average yield, my returns are at least 11.85% (incremental tax rate) + 2% = 13.85%. For doing two very simple online transaction. I dont need the money to beat some stupid benchmark and lose 11+% in one quarter. If I put it to CPF SA or buy SGX at current yield of 4.5%, I think I won’t do too badly.

All in all, for a somewhat average investor, I think this is a waste of my $$ and time. For those who might be less learned, nah too much cost and stupid premiums for a death benefit on my cash (but reduced by these deductions and expenses).

You will need a very good fund that can consistently deliver probably 5% every year for 25 years to break even. Don’t bet on it.

I think I can salvage 26k now (before the market turns worse) or try to time the minibull, but I think running now is a safer bet.

Alas the liquidation of this policy shall be “Project Liberation”.


#12

Let it go, let it go
Can’t hold it back anymore
Let it go, let it go
Turn away and slam the door


#13

i think it is better to terminate because dun just think about the cost you going to pay for the next X amount of years but also the opportunity cost of your future premium. I have a similar situation and i terminate it. My decision is easier as yearly premium is 3k and i only pay for 1 year. So lost 3k completely. And you know what??? 1 year after my termination, my agent recommend his client to terminate this retirement policy i have just terminated. The reason is the return is not as good and my agent intro me to a investment policies. Guess what??? As an investor, i rebuttal his calculation with my investor thinking cap. He is loss of words…

End of the day, to be fair to those agent, they are not out to cheat you (some of them), but the problem is their lack of financial knowledge. They only take a few financial test plus guidance from their mentor which teach them how to sell, you think they really know alot. Plus u see agent all come from different background like degree that has nothing to do with finance. If u can take the loss just cut and think about not only the future premium u have save and also the opportunity cost.