Cancel the policy during free look period

Dear Mr. Tan,
I am 21 years old and have recently bought an ILP. I have read your blog extensively to find out what the terms in my Benefit Illustration mean. I worked out the figures in an Excel sheet and found out that the Effects of Deductions take at least ~25% from the Accumulated Premiums, and that the Annual Rates of Return  is reduced by at least 1.9% depending on when I choose to surrender the policy. 


Is this a good policy to buy? The 14 day free-look period will start tomorrow and I am considering cancelling this policy as I feel that this is an expensive policy. Please do help me take a look at the files and let me know if my calculations are correct. 


Your blog is very informative for a starter like me and I will continue to read it to find out more about financial planning. :)

REPLY
The distribution cost at end of 5 yers is $3,929 which represents 164% of the premium. This is high.

The effect of deduction at the end of 25 year is:

      Cash value  Accumulated    Effect of     % of               
                   premium      deduction     Acc Prem
5%     85,900      120,272       34,372        29%
9%    153,000      221,578       68,578        31%

For 25 years, the effect of deduction should not exceed 20%. In this case, it is too high.

As you are still in the free look period, it is better to cancel the policy and get a full refund. As you are young, you can buy term insurance from SAF and invest the difference in a low cost investment fund, such as the STI ETF. Read my book Practical Guide on Financial Planning and also attend the talk organised by FISCA.

All the best for your future.