What are investment-linked policies and what is a good amount to allocate to it if I am interested to buy? - Seedly
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Investment Linked Policies (ILP)

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Anonymous

Asked 3w ago

What are investment-linked policies and what is a good amount to allocate to it if I am interested to buy?

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Hi anon,

There are generally two types of investment linked policies. Both types 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.

As mentioned, ILPs come in two sorts, one with both protection and investment elements (traditional ILP), and one that is purely geared for investments (these often come with bonus units, etc or 101 ILPs).

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.

I don't recommend mixing investment with insurance. For insuring yourself, your needs would be better off met via traditional insurance. The fees and mortality charges on an ILP can really ramp up fast. As for 101 ILPs, their charges and fees can also be significant. You will likely be better of investing via an investment platform.

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Question Poster

3w ago

Thank You!

Hey there!

Investment-linked policies (ILPs) are investment based plans that invests your money into ILP funds. Each fund, of course, has a specific industry, country/region focus. By gauging your time-horizon and risk appetite, a portfolio will be crafted for you based on a different allocation into the different funds (think pie chart).

If you have a low risk appetite, a majority of your portfolio is allocated to less risky funds eg. fixed income funds while if your risk appetite is higher, a larger portion is allocated to more volatile funds. Of course, risk is proportional to reward. But thats not to say the most risky funds will definitely generate reward!

ILPs in general allow free fund switches. That allows you to capitalize on opportunities and protect your portfolio in the event you forsee a bump; this allows you to fund switch the more volatile funds to something less risky eg. fixed income.

For many people, having a trusted agent to manage their portfolio has been a go-to since they may not have the time to do their own research.

The plan is as good as your portfolio crafted and the agent managing. Your agent should be reviewing your portfoli frequently. Will need to chat more with you to find out what are your needs and stage of life!

Financial planning is an integral part of life. You can reach me here to find out more.

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Investment linked policies generally come in 2 forms.

1) Investments + Insurance

This is more for protection needs over investments and has the flexibility of customisation and withdrawals in between. Inherently, it will "buy term & invest the rest" for you and the term cover is tagged to your age, which increases in the long run but can reduced later on.

2) Pure investments but with a lock-in period

This is pretty similar to most diversified funds like ETF/ Robo, but instead of passively buying a basket. The fund manager picks the companies based on their research and experience. (same as above)

Typically, they buy in regularly through dollar cost averaging and diversification to reduce risk.

There are also fees (manager fees, insurance charges if any, early termination/ premium holiday charges, some have bid offer spreads which are the buying/ selling margin).

How much you wish to buy really depends on your budget and which type of ILP you are considering to buy.

If its the pure investment one, there's not really a guideline or restriction on how much you should allocate. Rather, it depends on how aggresively you wish to save and invet.

If its the insurance mixed one, theres usually a lower and upper range for you to choose from based on how you customize your insurance coverage. I would discourage taking the minimum limit as majority of your investment value would be taken up by charges in the long run and the policy may be unable to sustain itself.

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Investment-Linked policies are investment plans that include life insurance coverage. They can be classified into two categories:

1) Traditional Investment-Linked Policy - your premiums go into both investment and insurance plans. 2) Pure Investment-Linked Policy - your premium will be 100% invested into funds You can find out more information here.

A general rule of thumb is to keep your insurance/investment products to around 10% of your income.

Whether an ILP is suitable for you is dependent on your personal financial situation and goals - Do get in touch if you require more information​​​

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Question Poster

3w ago

Thank You!

Generally, investment-linked policies are offered by the respective insurers in Singapore. Accordingly, it allows you to invest into the offered investment-linked sub-funds while getting insurance coverage.

In terms of insurance coverage, there are plans that are protection based. To put it another way, the focus of such plans is on insuring you for life's major events. At the same time, your premium is invested into the sub-funds for potentially higher return.

On the other hand, there are plans that are focused on investment. In this situation, there is not much insurance coverage since we don't really need it in this case. Accordingly, the premium allocation should start at 100% from the first year and potentially increase over time. Furthermore, there should be limited charges since our emphasis is on growing yoir pot of wealth.

Depending on your needs, a general guideline will be 10% to 20% of your monthly income on healthcare and life insurance, and 20% to 30% on savings and investment.

Here is a Guide:

Understanding Your Personal Cash Flow

I will suggest for you to speak with an experienced consultant to evaluate your situation with you before we determine whether an investment-linked policy is suitable.

I share quality content on estate planning and financial planning here.

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Sharon
Sharon
Level 6. Master
Answered 3w ago

I rather you go for savings plans than ILP, since you look like you can commit. ILP is a huge commitment for many years before you can see it breakeven.

Don't waste your opportunity cost of time and money. Invest in something better.

I recently mailed my AIA ILP to surrender after 12-13 years. I must say it is very liberating! Because I have 'tahan' the sad returns for so long. XIRR is only 0.86%. High costs is a killer. Now I know why AIA can give S$1,000 to more than 1,000 employees on their payroll.....

https://www.channelnewsasia.com/news/singapore/covid-19-aia-singapore-1000-work-from-home-twitter-facebook-12843756

As a comparison, my 10-year NTUC Revosave is at 3.25% p.a. and my GE whole life policy w/ cash bonus (which I have it for 26 years) nets me a XIRR of 3.44%.

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