Investment-linked policy (ILP) is just as the name suggests, it is an insurance policy that combines both protection and investment. Don’t let this statement fool you. Even though there are investment elements in it, ILPs’ main priority is always to provide financial protection against financial catastrophe – namely the 3Ds, Death, Disability and Diseases.
Why Investment-Linked Policies?
Although investment-linked policies can be complex, they are very flexible and can be utilized to great extents. Not only can you readjust your benefits and premium from time to time (subject to certain conditions), you can modify your own policy to include or exclude any benefits you prefer. This will be discussed further in the Rider section below.
Structure
Investment-linked policies, like most life insurance policies, offer death and total permanent disability (TPD) benefits. Unlike traditional insurance policies, part of your premium paid in ILPs is used to invest in funds of your choice. The profit from the investment accumulates and becomes your cash value.
Withdrawal – One benefit of ILPs is that you are allowed to withdraw from your cash value while still continuing your policy. This is useful to overcome sudden financial needs in the future. However, you should be aware that for ILPs, the underlying insurance charges increase as you get older. Hence, withdrawal especially at the early stages is not encouraged to ensure your policy lasts in the long term. Otherwise, a top-up can be done in later stage to replace the deficit value.
Investing Funds – You can choose which type of funds to invest in for your ILP. The funds can range from the low-risk fixed income funds, to the high-risk equity funds. It is important that you understand your own risk appetite to choose the fund that suits you most. Funds invested are not finalized, so you are allowed to switch between different funds to fit your current needs and preferences. For example, below are fund performances from Great Eastern’s investment-linked policies. Regardless of insurance companies, all companies usually have a range of funds to suit different risk appetites and financial objectives.
Riders
Think of Investment-Linked Policies as fruit baskets, you can place and arrange different types of fruits into the basket to suit your preference. Here are some of the most popular features you can choose to attach to your ILPs.
Medical Card – This is why many preferred an ILP. The medical riders in ILPs offer coverages that are more comprehensive than most standalone medical plans. You can choose medical coverage that fits your needs and budgets, and with affordable premium, you have the privilege to enjoy unlimited lifetime medical limit. This feature is even more necessary now as medical inflation is rising by 15% on average per year.
Critical Illness Coverage – You can choose to receive a lump sum payment of money in the event you are diagnosed with one of the 36 Critical Illnesses. Even better, you have the option on whether to receive the money in early stage or at late stages. Unlike traditional critical illness coverages, this amount of money is fixed.
Waiver Benefit – Upon event of Critical Illness or Total & Permanent Disability (TPD), the insurance company will help you pay for your premium up to a certain age, even after recovery! This means, if life gives you a second chance, you get to enjoy money invested into your funds and life coverages for free.
Payer Benefit – If you’re financing an ILP for your children, you may add on this feature to make sure their insurance is taken care of even if something unfortunate happens to you.
When to purchase ILP?
The best time to buy an ILP is when one is young and healthy. This is due to medical cards having strict underwriting requirements. Any unwanted medical records happen may make you unqualified, excluded for certain coverages, or imposed extra charges for the rest of your life.
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Matthew, Ismitz (2015b) Planning for healthcare costs in retirement – business news | the Star Online. Available at: http://www.thestar.com.my/business/business-news/2015/10/04/planning-for-healthcare-costs-in-retirement/
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Prepared by Will Tan.
