Investment Linked Policies?

In this topic, I would like to highlight on this policy type that most of you would have purchased, either using cash or your CPF $: Investment Linked Policy, or more commonly known as ILP. Many of my clients feedback that they have little idea on how does this policy works as insurance agents failed to point out to them the features of it.

What is an ILP?

An ILP is an insurance policy which provides a combination of protection and investment. Premiums buy life insurance protection and investment units in professionally managed investment-linked funds.

ILPs DO NOT GUARANTEED cash values. The value of the ILP depends on the price of the underlying units, which in turn depends on how the investments in the fund perform. Fees, expenses & insurance charges are paid for through a deduction of the premium and/or sale of purchased units.

Sounds chim? Layman words. A portion of your premium goes into insurance charges (which increases year by year), and the remaining portion goes into buying of units on a regular basis. Although for most cases, the premium paid is levelled throughout, your allocation between insurance:investment actually changes over the years. Do you realize this?

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If you deeply go and scrutise your personal ILP, do you often find the case that even though you had paid alot of premium, your coverage is still very little? In my previous blog entry, findings have shown that most Singaporeans are under-insured. One of my suspects is that many insurance agents in the past do not give proper advise to their clients during their selling of ILPs.
For e.g. taking the case of a 30years old healthy man. Do you know that for a $100/mth premium, his insurance coverage can stretch between a simple $10k to a high $200k coverage for Death/TPD/CI?

Pls do not get me wrong in saying the person who designed the $10k coverage is unethical. It ultimately boils down to what are the objectives of the client during the purchase of the policy... was in more for protection coverage... or was in more for investments.. or a combination of both? It is the duty of a professional adviser to understand the needs of the client and design out the allocation accordingly.

There are pros and cons to buying an ILP in which the details I shall not discuss here. For your reading pleasure, pls refer to the LIA link below.

http://www.lia.org.sg/ftpsite/guide/ILPguide(17Aug06).pdf

Do feel free to approach me for a review of your existing policies to make sure what you holding on is something that is aligned to your needs.