An Introduction to Investment Linked Policy

What is an Investment Linked Policy?

An Investment Linked Policy (ILP) have both life insurance and investment components. Your premiums are used to purchase units in an Investment Linked sub-fund(s) of your choice. A portion of the units you purchased are then sold to pay for insurance and other charges, while the rest remain invested.

Currently, there is two option for ILPs.

• Single Premium Policy – Lump Sum placement to purchase units in a Unit Trust sub-fund(s). Lower health and protection coverage compared to regular premium policy.
• Regular Premium Policy – Premium paid on an on-going basis, health and protection coverage can be adjusted based on individual needs and preference.
  
  

Read About: 6 Best Investment Linked Policy in Singapore for Wealth and Coverage (Updated)

Why choose a Regular Premium Investment Linked Policy?

A regular Investment Linked Policy (ILP) can be structured accordingly to provide higher coverage for the premium paid, compared to other insurance policies. Policyholder determines the allocation of premium towards preferred unit trust sub-fund by the insurer. This allows greater flexibility and potentially higher returns compared to a participating insurance policy.

As mortality charges (the cost to insure a person) greatly increase towards the later life stage of the insured, surrender value can be lower than the total premium paid or may even completely depletes if the investment sub-fund are not performing in the long run. Due to the nature of the product, regular premium ILP ideally suits young adults or parents purchasing for their newborn child.

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Why choose a Single Premium Investment Linked Policy?

As the health and protection coverage is considerably lower, most of the premium paid goes towards generating potential capital gain. Some sub-fund offers the option of providing dividends which allow the policyholder to potentially receive a regular stream of income to supplement lifestyle.

The amount of expected capital gain or income stream corresponds to the level of risk taken. In the event of death, Single Premium ILP usually paid out the higher of the Single Premium amount or current valuation of the sub-fund, even if the valuation of sub-fund is lower than placement amount.

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Best of both worlds, investment and insurance?

Regular premium ILP can offer the highest level of coverage and potential capital gains, however, such benefits come at a cost. While a participating insurance policy consists of a minimum guaranteed and non-guaranteed cash value at maturity or upon surrendering, the cash value of a regular premium ILP is completely non-guaranteed and dependent on the sub-funds valuation.

Potential break-even for regular premium ILP tends to be longer compared to other policies as well. In the event of early surrendering of policy, losses tend to be the highest based on the total premiums paid compared to other types of policies.

Due to the complexity of the product, InterestGuru strongly advise readers to speak to an experienced financial adviser before making any decision.

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What are the Investment Linked Policies available in Singapore?

Without preferences and in no order of ranking, here are some of the popular endowment and saving policies available in Singapore:

• Aviva: Aviva MyLifeInvest
• AIA: AIA Family First Protect
• AXA: AXA Pulsar
• Great Eastern: Great Eastern SmartInvest
• Manulife: Manulink FlexiProtect
• NTUC Income: NTUC Vivolink
• Prudential: Prudential Prulink Supergrowth Cash
  
  

Read About: 6 Best Investment Linked Policy in Singapore for Wealth and Coverage (Updated)

What other insurance options can you consider?

A person with an aggressive risk profile who are looking for unlimited upside potential returns may also consider an ILP. However, if you are a risk-averse person, seek products with a guaranteed maturity value upon maturity.

Based on your individual risk profile, alternatives such as Whole Life Policies or Endowment and Saving Policies may otherwise be a better fit.

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Where can I compare the payout and benefits of Investment Linked Policies?