Many agents have been misrepresenting that ILPs have a “fixed premium” feature without full or honest disclosure or chose to gloss over the fact that very few ILPs has met the high projected returns. See point #1 and #2.
I am glad that most professional agents here are willing to concede that there is no “fixed premium” when returns are projected (previously at an unrealistic level until BNM intervened in 2019 to a much lower 2% and 5%). It is a bad sign that the regulator had to step in.
#1: Your Premium is Fixed But Not Your Insurance Charges.
‘Huh …, what does it mean?’
For most ILP policyholders, they know that their premiums, let us say RM 150 a month, are fixed. But, not many of them know that their actual insurance costs are not fixed and will be increased as you age over time.
For instance, you may buy yourself an ILP when you are in your 20s. Your actual insurance cost is low. Thus, a larger proportion of your premiums would be first allocated into your unit trust funds. Hopefully, they grow in investment value in the future.
30 years later, you are now in your 50s. Your actual insurance cost has gone up, exceeding your ‘fixed ILP premiums’. How do you cover the shortfall? Simple, it will be taken from the current investment value of your unit trust funds. Hence, despite a rise in actual insurance cost, you’ll somehow maintain the amount of your fixed ILP premiums.
#2: What if My Unit Trust Funds have been Fully Exhausted?
Is it possible for that to happen?
Yes. It could be due to poor investment results from your unit trust funds. Or, it could be due to substantial hikes in actual insurance costs which wipe out all of the investment value in your unit trust funds.
Will my ILP be terminated by my life insurer if it happens?
In most cases, life insurers will demand a top-up in premium from policyholders like yourself. If you agree to make extra payments for it, then, all is well. The ILP will continue to be in-force. Otherwise, your ILP will be terminated.
QUOTE(lifebalance @ Jul 27 2020, 01:45 PM)
Sorry to say that most info given in there are common sense. Some points are debatable and inaccurate.
Point 5# within the article would be also inaccurate as the intention of the article writer is to maximize on the insurance coverage but neglect to inform within the article to the reader that every increase in sum assured = increase in cost of insurance. There is a reason why insurance company may put in some slack within the premium in order to avoid policy being lapsed earlier should the ILP Fund perform not up to par so that the slack would be a +/- buffer.
However every advisor would have their give & take advise and I am sure the article is not conclusive though it's open for debate which will be endless as they would stick to their preference of advise.
But I think the article's intention to further not "confuse" it's reader have confused them even further to put words like "newer ILP are more expensive" when the intention of BNM to allow higher MAR allocation in the earlier years so that the policy holder would have more of their premium paid being invested in the earlier years than the previous MAR allocation rate where the company only 43% instead of 60%.
Life Insurance companies now have to give more to the policyholder rather than previously where they took upfront most of the $$. Hence most of them adopted Early Termination Fee of 20% in the 1st - 2nd year policy for giving away the extra Allocation to the policyholder to benefit. So I don't see how the article pointed out correctly about the changes made by BNM on the MAR.
Jul 26 2020, 11:08 PM
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