One of my friend asked me about my views on a certain AIA Investment Linked Policy (ILP) for his family situation.
I gave him some of my views personally, but when I read The product overview here at ComparefirstIt learned to note about the costs of insurance.
This investment -related policy (ILP) is the AIA Pro Lifetime Protector II. In one of the more recent ILP conversation, you may hear that my CEO Christopher Tan the shared that the ILP today is different from the past in the sense that this ILP, called 101 ILP, is mainly pure investments. Their protection is limited to the total premiums you have paid, or 101%/105% of their policy value.
The Pro Lifetime Protector II is more a traditional ILP because it has both investment and insurance component. The Lifetime Protector II comes with two types of death benefit:
- Plus death benefit: The benefit is a total of insured amount (insurance policy) + policy value
- MAX Death benefit: The benefit is maximum (insured amount, policy value)
Today I am less interested in a different aspect of the AIA ILP, but the insurance component if the option Plus Death is chosen.)
Keep in mind how the term insurance works in an ILP
The insurance costs that you pay on a typical ILP is on a SOM-AT-Risico model.
You pay for the costs of the insured amount that you are covered. Your insured sum is based on the insured amount minus the policy value. This is the maximum advantage of death in this pro lifelong protector II. In the plus benefit you pay for the insured amount.
So what is the difference? Suppose you want to cover an insured amount and that your policy value is now $ 30,000. Under the maximum death benefit you pay for the insured amount of {$ 1 mil – $ 30k = $ 970k). According to the Plus -Bewijdenvoordeel you pay for the insured amount of $ 1 mil.
This means that under the maximum option of death, if your policy value builds up over time, your insured sum will fall and your insurance costs will fall. Your insured person will never go down in the Plus Benefit model.
The advantage of this SUM-AT-Risk model is that if your policy value grows, usually when investment will become net of costs, your insurance costs will fall. If not, you will have a problem next time (as you will see).
This sum-at-risk model is also similar to your universal life policy. Your insurance costs will be comparable to this maximum death benefit model of the Pro Lifetime Protector II.
How many premiums you pay depends on your age.
AIA has provided a table for cost insurance in their product overview.
I translate it into graph form.
The graph below shows the annual insurance costs for a male smoker and male non-smoker for a coverage of $ 100,000:
See this if … if your assured sum at that age is still $ 100,000 [x]You pay that annual premium.
If you are 5-year-old male non-smoker and your insured amount is $ 100,000, then your annual premium is $ 43. The same if you are a male smoker. This is affordable.
If you are non-smoker of age, the corresponding annual insurance costs:
- 20: $ 63
- 30: $ 63
- 40: $ 105
- 50: $ 296
- 60: $ 937
- 70: $ 2,781
- 80: $ 6,326
- 90: $ 15,744
- 99: $ 31,829
These insurance costs are deducted from your existing policy value.
Various insurer will determine their own insurance costs. This was also some time ago and the prices also change. Note that this is insured for only $ 100,000, so if your insured sum is higher and you would like to have some detection, you can simply multiply the annual costs with how much you are covered by 100,000.
There are a few implications that you have to fulfill:
- The insurance costs are quite manageable if the insured person is very young.
- If your policy value significantly builds up the value when you are older, your paid costs of the insurance will decrease dramatically (perhaps to zero)
- If your policy value does not build up as you get older, a larger insurance costs will be deducted from your policy. This deduction is as expenses from your policy and would decrease your policy dramatically.
- If your ILP is for protection, you must carefully consider what your power protection strategy is, especially if you have a Plus -Bewelijdsvoedeel where the insurance costs are based on insured sum and the insured sum is consistent. Usually life insurance is to help your people charged if the insured person died prematurely. If you don’t have more people, depending on you, especially after a certain age, you have to rationalize and vomit the policy.
It means a bit that such a policy is not always a set and forgets.
The table below is the same only for a woman:
Now note that the lines for both male and female smoker versus non-smoker are fairly close, apart from a certain period in which we are older. We will comment on that later.
Here is the male of the insurance costs in the bar chart (nothing new, but perhaps some of you will find this clearer):
The premium smokers pay non-smokers:
I tried to take the premiums that were paid for male smoker minus the premiums paid for non-smoker and you get the following graph:
Here is the female:
What you get are the incremental higher insurance costs between a smoker and non-smoker. If the underwriter praises on the basis of the risk of dying, we may be able to tell what the probability is.
But again, are the median life expectancy not around 84 for male and 86 for a woman? I don’t know, but I interpret that after 85 whether you smoke or non-smoker, your chances of dying is almost the same.
The premium for female smoker is less!
Epilogue
If you look at the graph, you can understand that there is no free lunch if you want to cover up to 99 years old. If the insurer charges the insurance costs, based on age, you in principle pay for your death benefit.
The jackpot is when a person dies earlier, but I wonder if someone wants that kind of jackpot.
Many already have a negative picture of ILP and they can be skeptical about why an ILP would charge in this way. As I said, an ILP is not the only insurance model charged in this way.
Universal Life also follows this SOM-AT-RISICO model.
The advantage is that you pay for how much protection you want. If you want to cover your risk of life when there is a low chance of dying, but the financial impact is important for your family, but are convinced that a diversified stock portfolio will conquer the return over time, this insurance model is very efficient than just the use of a level period insurance.
This allows an automatic cover -speaking adjustment to make up for portfolio ficiency.
The risk is if the investments do not work. And costs influence investments.
If you have a complaint about things, then you have to be unhappy about the right one, the structure, the active management of investments, the high investment costs and not the wrong one.
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Kyith is the owner and some writer behind investment canals. Readers coordinate investment canals to learn and build stronger, stronger power foundations, how to have a passive investment strategy, to know more about investing in Reit’s and the notes and bolts of active investing.
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From 2004 to 2019, Kyith worked as an IT operational engineer. He is currently working as a senior solutions specialist in insurance. All opinions about investment canals belong to him and do not represent the views on providing.
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