Investment-linked insurance (ILP) schemes are policies that include life insurance coverage and investment components. While some see ILPs as a financial product that offers the “best of both worlds” to policyholders, others are a little more wary, believing they would end up doing better if they kept their goals. of wealth accumulation separate from insurance schemes.
Unfortunately for the latter, their skepticism could prevent them from taking advantage of one of the most powerful financial tools available on the market. To save you from making this mistake, let’s look at 4 common misconceptions about ILPs – and why they are wrong.
Myth #1: You will be locked in an ILP compartment
|Initial amount (S$)||Total savings after 10 years; Interest rate at 0.4% ($)||Total savings after 10 years; Annual returns at 9.4% ($)||Difference ($)|
With ILPs, your premiums are used to pay for units in one or more sub-funds of your choice, depending on your risk appetite. You can think of sub-funds as mutual funds that can help you generate returns (i.e. potentially grow your wealth faster than deposits or regular savings accounts).
However, one of the most common misconceptions about ILPs is that you would be locked into your choice of sub-funds – unable to make changes to your portfolio even if a specific sub-fund fails to meet your goals. investment or when your financial goals change.
That couldn’t be further from the truth. All ILPs allow you to tailor your fund portfolio to your financial goals. Of course, some ILPs will impose a “switch fee” or a limited number of free switches. Occasionally, however, you can find gems like Tiq Invest by Etiqa Insurance, which entitles you to unlimited exchange of packaged funds at no additional cost.
Myth #2: The older you get, the more you will pay for ILP bonuses
|Insurance year||Front-loading||Background loading||Tiq Invest|
|1||85% of the premium used for the expenses of the insurer; 15% for the purchase of sub-funds||100% of the premium used for the expenses of the insurer; 0% for the purchase of sub-funds||100% of the premium used for the purchase of sub-funds|
|2||70% of the premium used for the expenses of the insurer; 30% for the purchase of sub-funds||100% of the premium used for the expenses of the insurer; 0% for the purchase of sub-funds|
|3||50% of the premium used for the expenses of the insurer; 50% for the purchase of sub-funds||0% of the premium used for insurer expenses; 100% for the purchase of sub-funds|
|4||0% of the premium used for insurer expenses; 100% for the purchase of sub-funds||0% of the premium used for insurer expenses; 100% for the purchase of sub-funds|
|5||0% of the premium used for insurer expenses; 100% for the purchase of sub-funds||0% of the premium used for insurer expenses; 100% for the purchase of sub-funds|
Do you remember the insurance part of your ILP? Most ILPs will take a discount from your premiums – either through the “initial load” or “final load” – to cover the insurance aspect of your policy, including the plan itself and the expenses of the insurance. insurer.
Since the premium for health insurance increases with age, this results in another misconception related to ILP: that you should pay increasing premiums over the years. In reality, however, you don’t. As you age, the amount of premium you pay does not increase; only that more of your premium will need to be spent maintaining your coverage (ie the percentage of your premium spent on purchasing sub-fund units will decrease).
If this aspect of ILPs puts you off, don’t worry. Some ILPs (eg Tiq Invest) allow you to invest 100% of your premiums without any insurance costs, while providing you with death and terminal illness cover.
Myth #3: Measuring the performance of your ILP investment won’t be easy
Contrary to popular belief, measuring the performance of your ILP investment is not at all a challenge. For example: with Tiq Invest, you will receive fund reports from each of your ILP compartments on a semi-annual and annual basis.
These documents allow you to easily understand the performance of your sub-fund compared to other funds with the same or similar benchmarks – so that you can judge whether it really corresponds to its stated investment objective. Of course, if you have any further questions, you can always defer to your fund manager.
Myth #4: ILP is a risky investment move
One of the strongest arguments against ILPs is that they generally don’t have a guaranteed cash value. Instead, the value of your policy depends on the performance of your fund portfolio. In other words: the redemption value of your ILP may suffer (or even drop to zero) if your sub-fund performs poorly. And that’s your investment and your insurance coverage. While this certainly goes for some ILPs, you also have “risk-free” options to choose from.
With Tiq Invest, for example, you never have to worry about an economic downturn wiping out your entire insurance coverage because your loved ones are always entitled to a lump sum payment at the higher of one) 105% of premiums Net Paid or 2) Account Value. So if you are ready to undertake an ILP that truly offers the “best of both worlds” – without worrying about the typical associated downsides – then take a look at Tiq Invest.
The policy is underwritten by Etiqa Insurance Pte. ltd. (company registration number 201331905K).
Tiq Invest is an Investment-linked Plan (ILP) which invests in ILP sub-funds. Investments in this plan are subject to investment risks, including possible loss of principal invested. The performance of the ILP sub-fund(s) is not guaranteed and the value of the units of the ILP sub-fund(s) and the income accruing to the units, if any, may go down as well as up. Past performance is not necessarily indicative of future performance of the ILP sub-fund(s).
A product summary and product sheet(s) relating to the ILP compartment(s) are available and can be obtained from us via this link here. A potential investor is invited to read the product summary and the product sheet(s) before deciding whether or not to subscribe to units of the ILP compartment(s).
As purchasing a life insurance policy is a long-term commitment, early termination of the policy usually involves high costs and the cash value, if any, owed to you may be zero or less. total premiums paid. You should seek advice from a financial advisor before deciding to purchase the policy. If you choose not to seek advice, you should consider whether the policy is right for you.
This content is provided for informational purposes only and does not constitute a contract of insurance.
Full details of the terms and conditions of the policy can be found in the policy contract.
This policy is protected by the Policyowner Protection Program which is administered by the Singapore Deposit Insurance Corporation (SDIC).
Your policy coverage is automatic and no further action is required on your part. For more information on the types of benefits covered by the scheme as well as the limits of cover, if any, please contact us or visit Life Insurance Association (LIA) Where SDIC websites.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
The information is accurate as of the article’s revision date, i.e. February 15, 2022.
This article was first published in ValueChampion.