Investment Linked Policies (ILP)
Asked 3w ago
I interested in both ILP and savings plan tried comparing between both but they just seem so similar to me. Both provides an increase in your wealth and also some coverage. So what distinguish them? Would appreciate any insights thanks!
They are actually very different.
An ILP would invest in Unit Trusts which would be chosen by you or the advisor, depending on the status of the CKA. There are many types of unit trusts, but they are all non-guaranteed and you will be exposed to the full upside and downside risks of the market.
Generally ILPs come in two sort, one with protection elements, and one that is purely geared for investments. Both will usually have a regular premium mode whereby you contribute monthly, but they will come with fees and some T&Cs with regards to withdrawals and premium holidays. Your coverage is either based on what you choose, or 101% of your premiums or account value, whichever is higher.
Saving or endowment plans are different in that they have a guaranteed maturity value from the very start. There are non-guaranteed bonuses as well, which depend on the performance of the insurer's participating fund (which is where your monies are invested in). However, no matter how bad the markets are, your guaranteed maturity value will always be there. Thus, you have potential upside return, but a downside protection from market downturns. Good plans will have returns that are better than capital guaranteed when held to maturity. However, due to the conservative nature of the portfolio (they hold mostly fixed income), the returns can only be so much.
Coverage wise, they are definitely not meant for covering events like CI or death/TPD. You would want to get a separate policy for that. They are best suited for time bound commitment such as children's education, creating guaranteed retirement income streams, or as legacy planning, whereby your monies cannot be put at risk.
I would suggest that you speak to an advisor to understand the finer details of these types of plan. There is no 'one size fits all' plan, but rather, a plan that suit you and your objectives and budget.
ILP and savings plan are two different plans. ILPs, as the name suggests, is an investment plan whereby your principal and returns are not guaranteed. There is, of course a potential for upside returns. A savings plan, however, usually guarantees your principal (but please check the policy illustration for reference, not all plans are the same). A savings plan also gives a bit of non-guaranteed interest and non-guaranteed bonus with it.
You might want to evaluate your risk profile. Are you able to stomach volatility and how much losses are you able to potentially take? If you arent able to stomach all of these, you might want to opt for an endowment plan or savings plan. However, if you have a trusted agent to monitor your investment portfolio and you are able to stomach volatility, an ILP can work for you based on your time horizon, risk appetite and needs :)
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For an investment-linked policy, the premium is put in a fund that will be invested by the insurance company. You will be able to determine your allocation of asset that will maximise your long-term return. While it might have a higher rate of return, you will also have to bear the risk of the market.
Endowment policy constitutes less risk and is normally use for goal-based saving, such as university tuition fees or retirement. Unlike investment-linked policy, your money is placed in the Insurance company participating fund. Endowment policies, however, have a guaranteed component which investment linked policies do not offer.
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