Switch to low cost fund

Hi Mr.Tan,

l have been a fan of your blog and would appreciate your advice.

I bought a PruLink ILP policy 10 years ago. The invest $200 a month. At that time, I had no idea on insurance or investment. l am now aware about the high distribution costs and fund management charges, after reading books and reaffirmed by your articles.

I have decided to separate my insurance and investments. I intend to cash out on my ILP policy and invest my $200 separately.

Here are my options:

A) Buy a Term insurance
B) Use my CPF to buy an endowment to get a regular streams of income 10/20 years later

REPLY

The PruLink ILP is actually like a unit trust. You have already incurred the high upfront charges. Going forward, the charges should be quite modest. By now, you are probably investing 100% of your monthly savings, similar to a unit trust.

Before you make a switch, you have to consider the expense ratio of the Prudential fund, with the the unit trust that you wish to invest in. You may find the expense ratio to be similar, so there is no advantage in making a switch.

You can also look at the mortality charges compared to the Term insurance.

If you make a switch, you should go for option A, i.e buy Term and invest the difference. Do not take option B (endowment plan) as you will be incurring high charges again.