Investment Linked Policies (ILP)
Asked 2w ago
Can i have your advise on which product would suit my current situation? i am willing to put aside a certain amount of money every month. thanks!
An endowment plan is a type of life insurance policy that combines savings and protection. It pays out either on death or when the policy matures. There are two types of returns and bonuses from endowment plans, guaranteed and non-guaranteed. Guaranteed returns and bonuses will be as stated in the policy documents. However, non-guaranteed returns and bonuses will depend on the investment performance in the participating fund of the endowment policy.
ILPs are policies offered by insurance companies that provide policyholders with both insurance and investment components. The money collected by the insurer form a pool of fund that is used to invest in various markets instruments (debt and equity). Policy holders have the option of selecting the type of funds (debt or equity) or a mix of both based on their investment need and appetite). Some of the investment you buy are then sold to pay for insurance and other charges, while the rest remain invested.
Both are different in terms of risk profile and returns. You have to take into account your personal financial situation and risk appetite before you decide which is more suited for you.
Do get in touch with us so we can help reccomend a product best sutied for you.
Good on you for wanting to make your money work for you :)
In general, it depends on your objectives, time horizon, strategy and risk appetite.
Endowments in general provide a capital guaranteed (but do read the T&Cs, may differ from banks and insurers etc) with a teeny bit of interest. It often also comes with a terminal bonus. Usually, they come in different lock-in periods, ranging short to long term so it depends on what your time horizon is. If you have a long term need to save up for, an endowment will work best. In general, it's often used for risk-averse people and to meet a guaranteed need for the long term.. The wealth appreciation for an endowment is minimal compared to an ILP since risk and reward is usually proportional.
An ILP is a product that allows you for capital appreciation. Do note that investments are never guaranteed; however, the other alternative is to leave it idle in the bank which won't be helpful either.
Depending on your strategy, if you are looking to set aside a sum every month, you'll want to opt for an ILP that allows for dollar cost averaging (DCA). Do note that this DCA ILP products usually have a lock in period of more than 10 years in general because investments are usually have a long term element to it. If you have an appetite for risk, then an ILP is worth your consideration.
ILPs in general are also capable of fund switches whereby you can switch out to safer asset funds to protect your earnings or capitalize on opportunities by switching to equities related funds for wealth appreciation.
With ILPs, you'll have to make sure you are aware of the ILP funds that you're invested in. Do make sure your funds have a strong historical performance. These information are usually found on the website of the plan provider. And do make sure if you're getting it through an advisor, your advisor has a system of reporting to you your investment performance.
Also, make sure you aim for an ILP that is investment based, not protection based. There are protection based ILPs out there that provide a mix of coverage and investment but these plans are highly discouraged due to its high mortality costs associated with it, and not all your premiums are invested in from the start. To identity which ILP is investment or protection based, if the death benefit is minimally higher than your invested premiums, its highly likely its an investment based ILP.
All the best!
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Have you considered Roboadvisers as opposed to ILPs in your consideration set?
You should be as they offer very attractive risk-return and low-cost management which are hard to replicate.
You can use the following calculator to give you a guideline of what you can expect from putting aside a percentage of your income per month:
It really depends on your
1) risk appetite for investments - can you stomach short term investment losses/ fluctuations?
2) time horizon - when do you need the money
3) goals and objectives - what do you need the money for?
4) need for flexibility - do you want the option to withdraw halfway?
"Entering work life" is insufficient to provide sound advice as to which would be more suitable for you.
Why not consider savings plan? All the while, I have been putting mostly of my money in savings plan (around 3 - 3.5% p.a.) and until recently, I decided to allocate some cash to stocks.
I wrote a lengthy reply here, which you can consider:
We would need to understand your investment goals and desired outcome before we can share if endowment or ILP is suitable.
If you are looking at purely investments, I would say ILP or endowment plans are poor options due to the high cost involved. Hope this helps!
Generally, it depends on your financial goals and the risk that you are willing to undertake to achieve these goals.
For endowment, your premium is invested into the insurer's participating fund. Accordingly, you receive both guaranteed and non-guaranteed bonuses from the fund.
On the other hand, you are responsible for the investment upside and downside for an investment-linked policy.
With this in mind, we will need to understand your priorities before we can determine whether an endowment or investment-linked policy is the right financial instrument for you.
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