ILP vs. Unit Trust – which is best?

Editor
Business Times

I refer to the article by Genevieve Cua, “What clients are not told about ILPs” (BT, April 12).

The article does a good job of pointing out the problems of unit trusts and ILPs which are sold by two life insurance companies: Aviva and Manulife. The ILPs and unit trusts offered by these two insurers are nearly identical. Yet the ILPs cost slightly more than the unit trusts.

The conclusion of the article is give by Mr Ben Fok from IPAC financial planners. He says: “My personal opinion is, if you can avoid investing in ILPs, don't invest. Just go for a unit trust.”

Is this good advice? Are unit trusts really cheaper than ILPs?

To find out, it would be useful to compare expense ratios of unit trusts vs. ILPs.

This has been done. A study recently compiled the expense ratios of both and compared them. To standardise, the study excluded bond funds and considered only equity (stock) funds.

For ILPs, the median expense ratio was 1.8 per cent. For unit trusts, it was slightly higher at 2.1 per cent. The difference is a small one.

Of equal importance is that among the 11 insurers, the median expense ratios of their ILPs ranged from a low of 1.0 per cent to a high of 2.2. The range is important since people typically don’t buy an average fund. They buy one or more funds from a single insurer.

The study found the insurers with the lowest expense ratios for ILPs are NTUC Income (1.0 per cent), GreatEastern Life (1.4 per cent) and Prudential (1.5 per cent).

Indeed there are bargains to be found among ILPs.

Source: www.AskDrMoney.com “Best ILPs -- single premium”.

Tan Kin Lian
Chief Executive Officer
NTUC Income