Investment Linked Policies (ILP) - Seedly

Investment Linked Policies (ILP)

A mix of investment and insurance coverage

ASK A QUESTION
  • Recent Activity
  • Unanswered
  • Trending

Investment Linked Policies (ILP)

Insurance

Investments

Fergus Tan
Fergus Tan

()

Level 3. Wonderkid
Updated 2w ago
It's not an easy answer, because ILP by itself is a category of products. Saying that ILP is bad, is similar to saying "Stocks trading is bad", or "Options writing is bad", or "Buying insurance is a waste of money" Traditional ILP came about when people were unhappy with par fund returns of whole life policies, and they wanted more flexibility and control. Insurers then flip it around and gave people full flexibility. The biggest problem with that was that cost of insurance climbed over the years, and before you know it, people were actually left with a depleted account in their old age where they needed the coverage the most. More recently, you see a lot of ILP which is primarily an investment product but sold by insurers or financial advisory firms. Typically nicknamed 101ILP, they usually provide a death coverage of 101% of total premiums paid, or in other words, not much insurance coverage. In this sense, it's really not mixing investments with insurance. In this space of wealth based ILPs, you have AXA Pulsar, Manulife InvestReady Wealth, and Tokio Marine Atlas Wealth as the top 3 most popular ones. How it usually works is that you get an upfront bonus that may be paid in the first year, or up to a few years, but you have to commit to a time horizon. I will use Manulife InvestReady Wealth as an example because it's simpler to understand. All 3 illustrations are available online. https://www.manulife.com.sg/our-solutions/invest/investment-linked-plans/investready-wealth.html https://www.axa.com.sg/our-solutions/personal/savings-investments/pulsar https://www.tokiomarine.com/sg/en/personal/wealth/wealth-planning/tm-atlas-series/tm-atlas-wealth.html In the case of Manulife InvestReady, the illustrated example shows a choice of a 20-year plan where the annual premium is $12k. You get an upfront bonus unit of $7,200 (or roughly 60%). In the case of TM and AXA, they tend to give a bonus of up to 200% but spread over a few years. The trick you will see is the annual charge. Back to InvestReady, this means you start the account with $19,200 worth of investments. You have to pay a fee of 2.5% (made up of 0.7% and 1.8%) every year, for the first 10 years. After that, it will be a fee of 0.7% subsequently. A way to think about it, is that the upfront bonus units is used to offset the 2.5% paid over the subsequent years. If you were to run your numbers, in theory the additional bonus units might put you ahead of people who buy unit trusts directly. As for AXA and TM, they give much higher bonus units, because the fee charge per annum is also much higher, up to 7% per annum. So the balance point is if you believe that over the long run, investments are uptrending or not. If so, then bonus units help, since you frontload your profits. The biggest downside I see if you are locked in for the committed time period. If you surrender or withdraw before that, you are likely to lose a large chunk of it. To be fair, I think it's quite neutral versus directly investing in unit trusts. You can probably only say for sure on hindsight. You need to understand your objectives too, because even within the unit trust space, there are many pricing models, such as wrap accounts, non wrap, etc.

Investments

Insurance

Investment Linked Policies (ILP)

Hi Anon, The subject of surrendering is rather tricky to answer, however, I would urge you to ask yourself a few questions here first: 1. Why did you get the policy in the first place? 2. What do you want to achieve from the policy? Are you ok with the risks? 3. Are you able to sustain the premiums? 4. Do you understand the conditions of the policy, especially with regards to the fees and the charges? 5. Did you look at the Benefit Illustration and calculate the real return to you? (A published 4% return will work out to be lower, the only question being what is the return to you as the investor) 6. Are you going to be managing the funds and the rebalancing, or is the advisor going to do it for you? 7. Are there better options for your money given your risk profile and time horizon? You can change the policy to monthly, but then it will only take effect from the next policy year. Without the specifics of your policy, I am not able to give a full opinion, taking into account that fund selection will have an impact on the outcome. If you'd prefer a more in-depth discussion, do drop me an email at [email protected] and we can converse there.

Insurance

Investments

Investment Linked Policies (ILP)

Savings

Yup, it's an up to 120-year annuity policy that can be bought by you and then transferred to your child. Example if you're 30, this policy will be up to 90 years long. You can transfer the policy to your child before you pass away and the policy will continue to pay until your child passes away or 90 years have passed, whichever earlier. However, ReadyLifeIncome is currently the annuity with the lowest guaranteed yield and other annuities have a higher potential total yield. Here's a quick screenshot of some of the available annuity plans that are alternatives to Manulife's policy. !
Answer image preview

Investment Linked Policies (ILP)

Savings

I would not mix investments with insurance. Investments should always give you flexibility to liquidate whenever, without any penalty whatsover (other than being able to accept the market price of your investments when you liquidate). You would have more options in terms of asset classes, availability of funds, etc and greater control if you directly invest, whether on your own, or with the assistance of an independent advisor like myself. The options are very wide when it comes to the investment universe. Speak to someone to get an understanding of your risk appetite, motives, objectives, etc before you start investing. The worst thing you could do is rush into the flavour of the month without doing your research.

Insurance

Investment Linked Policies (ILP)

ILPs are not meant to be used as a WL until the investment units can cover all the fees and increasing COI. Its is best that you understand the product features (which includes all the fees required to be paid yearly, which may include polic admin fees, investment fees etc etc). There are two ways to do this. (1) Maintain the minimum to ensure it does not lapse. However the cost of insurance will climb by age 45 and is crazily high per $1000 coverage, so it may make sense to either drop it and self-insure by age 50 (which is the reason to maintain the account above your sum assured to remove the COI, but if that happens, it is essentially self-insured so....) (2) surrender once there is no surrender charges or when the COI is too high to be serviced. This is totally dependent on you, but my rule of the thumb is if the coverage is 1% of coverage, might as well self-insure through your own means due to rule 72 + a few more years to accumulate it as your own emergency fund. Always do your calculations, be satisfied with your objective.

AIA Life Protection

Investment Linked Policies (ILP)

Insurance

You have to let us know what do you mean by full refund? If you are beyond the freelook period of 15 days, you will likely not be entitled to any refund of premiums. If you are looking at surrendering, there are surrender charges, as insurance is a long time commitment. Hope you let us know exactly what do you mean.

Investments

Investment Linked Policies (ILP)

What was your original purpose for getting the policy? Was it for protection? Or investments? Or both? I don't recommend mixing both insurance and investments in the same policy. You might want to evaluate your current situation to see if there are more cost effective solutions for your insurance portfolio, and there are definitely places such as POEMS where you can invest in funds in a more cost efficient manner. If you require a second opinion I can assist.

Insurance

Investment Linked Policies (ILP)

Zen Rogue Xuan
Zen Rogue Xuan

()

Level 5. Genius
Answered on 27 Jun 2019
Premium holiday : you may temporarily suspend your regular premium payments by applying for a premium holiday after the Minimum Contribution Period, as long as the value of the Accumulation Units Account of the policy is sufficient to cover the relevant policy charges due. With no premium contribution during premium holiday, the account value of your Pulsar II policy will be significantly reduced due to fees and charges, which are still deductible during premium holiday, and your entitlement to loyalty bonuses may also be affected. So basically after paying your premiums for a certain period of time, you can exercise the option to stop paying premiums. However, fees and charges will continue to apply, so what AXA will do is to sell the units you bought to service the premiums. In this manner, the value of your AXA Pulsar plan will fall signifcantly, and you may not get the loyalty bonuses too.

Insurance

Investment Linked Policies (ILP)

Would be good if you are able to seat down with an advisor to look through your policy. It depends on your ILP. Is it heavey on the protection side or is it heavy on the investment side. If it is higher on the protection side, you should be getting quite a good coverage with it if you have started the policy early. If you are buying term and investing the difference, what are the instruments that you want to invest in? These are questions that you have to take into consideration. I have an ILP too and it was done many years ago. It has quite a high coverage and I am still holding onto it. It is already 14 years old now. Policy value almost breakeven but I treat it as a protection policy and I won't be surrendering it any time near.

Investments

Investment Linked Policies (ILP)

Insurance

Readybuilder is not an ILP. Its an endowment policy. It's a lower return product because it's low risk. If you treat the policy as part of your bond allocation in your portfolio its fine. Just invest in higher instruments as well. Don't cancel the policy because you're going to lose money, and you'll probably replace it with a bond investment in the future anyway.
Load more questions