You will be able to ask the questions that reveal an ILP's costs and fit before committing.
Wei Ling's adviser friend has suggested meeting again to "go through the numbers". Wei Ling has read the product summary, listed the charges from lesson 5.2, The charges that set ILPs apart from unit trusts, and still does not know whether the plan is a good fit. She wants to walk in with a short list of questions whose answers would tell her.
This lesson gives you those questions and explains what each one reveals. They work for any ILP and any adviser. They will not tell you whether to buy, but they make it much harder for a policy's costs to stay hidden.
Ask what share of each year's premium is used to buy units, for each of the first ten years. Ask for it as a table, from the product summary, not as a verbal answer.
This one question shows how much of your money starts working for you and when. In the example in lesson 5.2, only 20% of the first year's premium bought units. Some policies allocate 100% from day one and recover costs through other charges. Either can be fine, but you need the numbers to compare. If the allocation is low in early years, ask what the rest pays for.
Follow up with the total of all charges in each year, if the adviser can show it, or the effect of deductions shown in the benefit illustration.
Life changes. Ask what happens if you stop paying premiums in year three, and again in year ten. Some policies allow a premium holiday, a pause in payments, but keep cancelling units for charges during it, which can drain the account value. Some lose bonuses if you pause. If the account value runs out, the policy lapses and the cover ends.
Then ask what you would get back if you surrendered, ended the policy and took the cash, in year three and in year ten. The benefit illustration should show surrender values for each year at two illustrated rates of return. Compare each with the total premiums you would have paid by then. The gap in the early years is the price of leaving early, and the surrender charges from lesson 5.2 are often a large part of it.
This is the question that puts a price on the bundle. Ask the adviser for two quotes.
The first is the same amount of life cover, for the same term, priced as term insurance: a plain policy that pays out if you die during the term, and in many policies if you become totally and permanently disabled, with no investment part. The second is the same sub-funds, or similar funds, bought as unit trusts, with their sales charges and expense ratios.
Add the term premium to the amount invested in unit trusts, and compare the total with the ILP premium. If the adviser cannot provide the comparison, you can get a term quote yourself, and compare sub-fund charges with unit trust charges using the charge sheet from lesson 2.4, List every charge on one fund. Many people find the separate route cheaper. Some prefer the ILP for features such as flexibility to adjust cover or switch funds inside one policy. The point is to see the price of those features in dollars.
A few more questions round out the list. How is the adviser paid on this policy, and is it more than on term insurance? Which sub-funds would you suggest, what are their management fees, and what are their benchmarks? What is the free-look period, the window after the policy is issued in which you can cancel, and how much would you get back if you cancelled in it? And what happens to the cover if markets fall hard?
Write the answers down during the meeting, or ask for them in writing afterwards. A good adviser will not mind.
This module is an ILP at a glance, enough to follow the conversation and ask good questions. It deliberately stops short of how to read a whole benefit illustration line by line, how the death benefit is structured in different designs, or how to judge an ILP against your full insurance needs. Those are taught in Insurance Decoded, the course on how insurance works in Singapore. If an ILP is a real option for you, take that course before you sign.
Wei Ling's list ended up on a single page, folded in her bag for the meeting. In the activity below you will write yours, so you can take it to any meeting with any adviser.
Write your list of ILP questions on one page so you can take it to any meeting with an adviser.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).