Investment-linked plans in Singapore
An investment-linked plan (ILP) is a two-way financial product offered in Singapore. The premiums made by the policyholder are used for both investment and insurance purposes. This insurance policy was created to allow flexibility to customers as compared to other whole life plans. The growth you earn through investment-linked plans is supposed to be your sum assured.
How does an ILP work?
The premium paid by the policyholder in an investment-linked policy is used to buy investment units and insurance coverage. Part of the premium will also help pay for the insurer's expenses, fees, administrative costs, etc. You may be required to make the payment in full or partially for the first few years of the policy.
Types of investment-linked plans:
There are two types of investment-linked plans; protection based and investment based. It is important to distinguish between the two before making a decision to purchase.
Protection-based ILPs:
Protection-based ILPs were made available in the market because some consumers wanted an alternative to traditional whole life insurance plans, which are typically perceived as not
worth the money as such policies have no cash value. Protection-based ILPs allow the policyholder to control the protection and investment part of the policy. This means if you are in need of more insurance coverage, you can simply opt for more coverage and lessen your investment funds.
Investment-based ILPs:
Insurance companies developed the investment-based ILP in response to demands from consumers with higher risk appetite. Such plans typically give you a return of 101% of your paid premiums rather than giving you an amount promised, which is typically greater than the premiums you pay. The insurer does not need to use your premiums to pay you the sum assured, and you will receive more investment unit funds. This way, you will accumulate wealth more quickly as compared to protection-based ILPs.
Factors to consider before buying ILPs:
Future goals:
You have to be clear about your priorities before deciding to buy an investment-linked plan Everyone yearns of providing the best to their loved ones and their future. Your future goals may be providing the best education for your kids or purchasing a home. This type of plan would be the best to help you accumulate wealth that can be used for a comfortable future.
Risks:
Everyone knows that investment and risk go hand in hand. Due to the volatile market , there is a certain amount of risk one needs to take when investing. If you are willing to handle some risk based on the market conditions, then you will be able to take on ILP.
Minimum investment period and premium holidays:
A premium holiday is referred to when the policyholder can temporarily stop the payment for the premium without needing to terminate the plan. It is important to check if your insurer is offering premium holidays and the minimum investment period for the plan. ILPs are a long-term commitment; make sure to thoroughly check the plan before making your purchase.