People are increasingly discussing investments and Investment Linked Policies (ILPs). But what exactly is an Investment Linked Policy (ILP)? Why is there a growing trend towards investments rather than capital-guaranteed products?
As generations shift, many young adults today are concerned about their financial future. Consequently, they are increasingly turning to investments to grow their wealth.
Given the high inflation rate of 4.8% in 2023 in Singapore, will saving our hard-earned money in savings accounts or fixed deposits effectively combat inflation? (Source: The Business Times)
The answer most probably is no.
What exactly are Investment Linked Policies (ILPs), and are they suitable for everyone? Should you follow the trend and start investing to secure your retirement or grow your first 1 million dollars? Read on to learn more about Investment Linked Policies (ILPs) before making a decision.
What is an Investment Linked Policy(ILP)?
There are 2 types of Investment Linked Polices (ILP) in the market
- Investment Linked Policies with Protection Coverage – This type of policy combines both protection and investment elements. The premiums you pay on a monthly or yearly basis are being used to purchase investment units in Unit Trust Funds. Depending on the amount of insurance coverage required, some of your investments in the unit trust funds are then sold off to pay for your coverage.
- Wealth Accumulation Investment Linked Policies – 100% of your premiums goes into wealth accumulation. This type of policy provides minimal protection coverage. The cash value of the policy comes from the investment units in the Unit Trust Fund(s) you are invested according to your risk appetite.
Read about: Investing Guide: Unit Trust Funds
Read about: 6 Best Investment Linked Policies in Singapore for Wealth Accumulation (2024 Edition)
Key features of an Investment Linked Policy (ILP)
We are not going into why an Investment Linked Policy is good or bad for your financial and insurance needs, as we cleared that in another article. Instead, we going to the general features of an Investment Linked Policy (ILP) to let you judge if the insurance policy features suits you.
- Flexibility of commitment
- No cap on maximum returns
- Dollar cost averaging
- Premium holiday
- Option to change protection coverage
- Diversification of investment
Flexibility of commitment
Yes, everyone loves this word when it comes to committing a certain portion of your salary into a long-term investment instrument. People tend to worry about rainy days.
Investment Linked Policies (ILP) provides you with the flexibility to withdraw your savings by selling off part of your units in your investment funds. You are also allowed to do an ad-hoc top up to your policy at any point in time.
Worrying about rainy days? Most Investment Linked Policies offers a Premium Holiday option, allowing you to take a break from paying your premiums. This feature provides financial flexibility during tough times.
No cap on maximum returns
As this is an Investment Linked Policy (ILP), there is no upwards cap on how much compounded financial returns you can expect upon surrendering your policy or maturity. Regular portfolio review and switching of the underlying unit trust funds must be done, in order to maximise your financial returns.
Have an Investment Linked Policy but have not been regularly reviewing your portfolio? Let our friendly but professional advisor help you with it. Contact us or Drop us a message today for a FREE portfolio review with no obligations!
Read about: How can I accumulate a million dollar (Realistically)
Dollar cost averaging
Investment Linked Policies (ILP) works best if your premiums are paid on a monthly basis. As your investment funds are purchased monthly when you pay your premiums, over the time term, this results in your investment purchased at an average market price.
If the selected funds are not performing well, an Investment Linked Policies (ILP) also allows fund switching without incurring any switching fees, unlike a direct investment into individual unit trust funds.
Read about: Investing Guide: Reasons to Invest in Unit Trust Funds
Premium holiday
An Investment Linked Policies (ILP) has the option to go on premium holiday with no charges incurred. Basically, this means you can stop paying your insurance premium during a period of financial hardship without affecting your insurance coverage.
Do take note that every month, units will still be deducted from your funds to pay for the premiums for your protection coverage portion. The Investment Linked Policy (ILP) will be void with all attached insurance coverage when the investment cash value runs out.
Option to change protection coverage
An Investment Linked Policies (ILP) allows you to vary the amount of protection you need. You have the option to choose a lower coverage when you just started working and is still single. When life stages change, you have the option to increase your coverage to suit your needs. When a higher coverage is chosen, do take note that the cost of insurance will be higher and the amount invested for investment returns will be lowered.
Diversification of investment
With a variety of investment funds to choose from, you reduce the investment risk of putting too many eggs in one basket.
Who are Investment Linked Policies (ILP) suitable for?
Investment Linked Policies (ILP) are generally suitable for people with a medium to aggressive risk profile and a time horizon of minimally 10 years. As an Investment Linked Policies (ILP) includes an investment instrument, returns are not guaranteed. When you purchase an Investment Linked Policies (ILP), you must be prepared that your cash value will fluctuate daily due to the fund prices changes.
Do not know whether are you suitable to own an Investment Linked Policies (ILP)? Fret not! Drop us a message or Whatsapp us to let our friendly but Professional Licensed Financial Adviser understands your needs and work out a FREE comparison proposal for you.
Read about: 5 ways to beat rising inflation in Singapore
What are the Investment Linked Policies Available?
Without preferences and in no order of ranking, here are some of the popular Investment Linked Policy available in Singapore:
Singlife: Singlife Savvy Invest II
HSBC Life: HSBC Life Wealth Voyage
HSBC Life Wealth Voyage is featured in our 6 Best Investment Linked Policies for 2024
Manulife: Manulife InvestReady III
Manulife InvestReady III is featured in our 6 Best Investment Linked Policies for 2024
NTUC Income: NTUC Income AstraLink
Etiqa: Etiqa Invest Smart Flex
Etiqa Invest Smart Flex is featured in our 6 Best Investment Linked Policies for 2024
Tokio Marine: Tokio Marine #GoElite Secure
Tokio Marine #GoElite Secure is featured in our 6 Best Investment Linked Policies for 2024
What other options can you consider, besides an Investment Linked policy?
A person with a medium to aggressive risk profile who are looking for unlimited upside potential returns may wish to consider an Investment Linked Policy. However, if you are a risk-averse person, seek products with a guaranteed maturity value upon maturity.
Based on an individual risk profile, alternatives such as a Whole Life Policy or Endowment Saving Policy may or may not be more suitable.
Read about: 3 Best Whole Life Plans in Singapore for Insurance Coverages (2024 Edition)
Read about: 4 Best Endowment Savings Plans in Singapore for Lifetime Wealth Accumulation (2024 Edition)
Considering an Investment Linked Policy or related insurance products?
Compare investment linked policies across insurance companies in Singapore before committing to any particular insurance plan.
Drop us a message if you need more details or advice from a licensed financial adviser.
