A policyholder sent to me a screen shot of her ILP policy and asked for my views about the investment.

I found it to be quite difficult to follow.

After studying the screen shot, I learned that she had paid an annual premium of $4,800 for 5 years, giving a total investment of $24,000.

The screen shot showed that she had invested in 3 funds, and the total value of her investment is now $24,270.

After 5 years, she just broke even.

I was puzzled by a statement from her agent which said - Your total investment was $14,400, the total amount in policy currency is $23,500.15 as of today.

Why did she get the figure of $14,400 as being the invested sum? The policyholder paid a total of $24,000.

I then realized that of the total payment of $24,000, a sum of nearly $10,000 was taken away as front end and annual fees for investing in the policy. So, the net amount that was invested was only $14,400.

Why should the policyholder pay so much fee for investing in the ILP? She could have invested in the STI ETF and incur a much lower fee. The value of her investment should be much higher than the amount of $24,000 that she had invested.

If the net return on the STI ETF is 5% per annum, inclusive of dividend, the value of her investment should be $27,800.

Question: Should should continue the policy?

My view is that she had already incurred the front end cost. That loss can not be recovered.

She should now look at the annual charges. Are the charges too high? If so, she should terminate the policy and invest in the STI ETF. If the charges are reasonable, she can continue the policy.

She can also study the return from the invested funds. Are the returns better than STI ETF? If so, she can continue the investment.

However, the past return is not indicative of the future return. Over the long term, I believe that the return should be the same. So, the annual charges should be the key factor to consider.

Tan Kin Lian