Mr. Tan,
My insurance agent advised me to invest monthly in an ILP policy, as I can benefit from dollar averaging. He said that if I invest a lump premium, which does not benefit from averaging. Is this a correct approach?
REPLY
The agent is probably telling you only one side of the story. You should ask the agent the following question:
"If I invest a regular premium, how much of my premium is invested? How much is taken away to pay expenses?"
"How much commission do you earn from a regular premium policy, compared to a single premium policy?
Most regular premium ILP in the market takes away up to 24 months of your savings. During the first year, a small proportion of your premium is invested, and the rest is taken away to pay commission to the agent and other expenses. The agent usually avoid explaining this charge to you, but is is disclosed in the policy illustration.
If you save $300 a month, the charges of 24 months amount to $7,200. This is a lot of money to give away, just by investing in a regular premium ILP. This is the most expensive part of an ILP policy.
Some insurance companies have a lower front-end charge. You should ask the insurance agent about it.
If you wish to do dollar averaging, it is better to invest in a unit trust. You do not have to incur this heavy front-end charge.
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
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