Anonymous asked 10 years ago
Dear KC Lau, I am a 26 year old female holding 2 investment linked life insurance policies of the same kind from the same company. My parents has purchased the first policy for me about 5 years back which I have continued payment when I started working. The premium is RM1400 per annum. As I was interested to increase my coverage and contacted my agent, I was told that this policy is no longer sold under the company, thus there is no way of upgrading it. I was recommended another policy by my agent for RM3600 per annum with higher coverage. Below are the details of both policies. What would be the most cost effective way to approach this situation? With my limited knowledge I would assume that my choices are:a) Hold on to both policies and wait till my first policy breaks even (estimated another 12 years to go). This would mean a monthly payment of about RM416, way above 10% of my monthly salary.b) Surrender the policy and take back the cash value which is below RM4K. C) Let the policy continue to self pay till it eventually lapses on its own. I am trying to think of the most viable and cost effective way of managing this and also considering the fact that my parents hard earned money has gone in to paying the premium for me during the first few years.
KCLau Staff answered 10 years ago
1. An investment-linked policy can altered anytime – I’ve had my policy upgraded several times since 2003. So your agent might not be telling the truth about upgrading the existing policy. The reason is that the old policy might be with another agent (since your mother bought it for you). When that old policy is upgraded, the new agent won’t get any commission. The commission will go to the existing agent.
2. For ILP, the commission ends after 6 years. It means your premium paid on 7th years onwards will be fully allocated to your investment account. That’s beneficial to the policy owners. So in your case, I would advice to keep paying the old policy.
3. As for the concern of paying too much premium, you can time it in a way that you take premium holiday a few months in a years. That means to keep paying just about RM4k a year, you can just pay 10 months of premium out of 12 months a year. The policy will still function regularly.