What should I look out for when I am buying an ILP?

I have also bought ILP and now I have stuck for 30 years locking period. So there is no way to get our money back in emergency case ?

Hi anon,

I would not reocmmend an ILP for the purposes of protection.

Although your agent may have stated that an ILP has a lower cost for the coverage you are looking for, this is not the full picture.

You need to understand that insurance is not free. There is something called the 'Cost of Insurance' (COI). This cost is paid by you, or rather, through your policy, and is the cost to cover you for a specified amount.

When you have an ILP, part of your premium goes towards investment linked funds. From the value of those funds, the COI for your age is deducted. As you can imagine, that means the value of investments is lower than your premium. However, for someone young, the COI is low. It will increase over time however, and the increase is exponential.

Knowing that insurance is a product for the long run, what happens years down the road? Due to the exponential increase in the COI, there will come a point where your premiums are equal to your COI. In this case, your premiums aren't invested. And the year after that, your COI is definitely more than your premiums. To make up for this shortfall, an amount more than your premiums will be deducted from your investments to pay for the COI, and this starts to erode your investment value. Eventually, your investment value will fall to zero and the policy terminates, leaving you without any coverage. The only way out will be to pay increasing premiums to sustain the premium (not likely what you want to do), or else decrease your coverage (maybe for death/TPD, but unlikely you will want to reduce the coverage amount too much for CI).

This is an 'average' scenario. Consider what if your investments don't do well? They will lose value, and yet the COI still gets deducted. Thus, the mixture of a guaranteed exponentially increasing COI with a non-guaranteed return on your investment is likely a recipe for disaster and very early lapsing of the plan.

If you are looking for Death/TPD coverage, consider a term plan instead. For CI cover, you can consider a limited payment life plan, or a term/multipay plan, depending on your budget/needs. The premiums are level and the cost of insurance is already build in to the plan, in such a way that, as long as you pay your premiums, your coverage is assured. There won't be any sudden lapse or unexpected termination of coverage.