As children, we walk through life carefree, knowing our parents are there to hold our hands. As adults, life throws so many obstacles our way and uncertainties crop up when least expected. An insurance policy is one of the best ways to face these challenges head-on. But, with a plethora of policies vying for your attention, how do you know which one is right for you? This answer may vary from case to case. However, if you are a working Singaporean looking to secure your future, then investment-linked plans could be the best bet for you. Let’s find out why!
Key takeaways
- Investment linked plans offer a combination of investment and life cover
- Policyholder can choose from expertly selected funds to create a unique portfolio
- Plans cover accidental death and offer periodical bonuses
- Regular-premium investment-linked plans also offer the benefit of dollar cost averaging.
- You can also review your plan annually to make changes as needed
The best way to secure your personal financial goals is by opting for a holistic financial tool – one that protects you today and ensures a bright future tomorrow. Keeping this in mind, financial experts often recommend investment-linked plans – also known as ILPs – as a top contender for the spot of a holistic insurance plan. Let’s take a look at what an ILP really is and what it can do for you.
An overview of investment linked plans
An investment linked insurance plan provides dual benefits of life insurance and investment. The premiums you pay are invested into a burgeoning portfolio of quality funds. Every year, some units from these funds are sold to pay for your insurance coverage while rest of the units stay invested to earn you handsome returns.
In a nutshell, you no longer need to worry about how to pay for your kids’ college tuition, or how to afford your dream house. With an investment linked plan, your future plans can truly pan out as you please. This is because an ILP ensures all your life goals stay on track by protecting your income now and building your wealth for the future.
Investment-linked plans usually have a policy term that spans your whole life. They also offer payout on the accidental death of the policyholder up to a predetermined age cap. Most policies have a premium payment term of 5, 10, 15, or 20 years during which the insured party can also receive bonuses as well.
Let’s look at Jim. Jim is 35 years of age. He purchases an ILP with a premium of S$ 24,000 per annum. His ILP rewards him with a 20% bonus on the premium amount. On completion of his first year, he will receive the aforementioned bonus of approximately S$ 4,800. In addition to this, he will receive a bonus every five years. Assuming he pays regularly when Jim’s policy will mature naturally when he turns 55 years old. At the age of 60 years, Jim is slated to receive S$ 1,072,110 with the rate of interest calculated at 8% pa. This is indeed a fabulous return at a time when Jim has retired from active professional life. He can now perhaps head on a holiday, help his kids get married or even pursue a hobby he always dreamed of.
Prime benefits of investment linked plans
In recent years, ILPs have gained significant popularity in Singapore and for good reason. To begin with, the biggest benefit is the insurance cover that protects your loved ones in case of your accidental death. As the insured party, an ILP can also double up as your retirement investment planning. You get bonuses at predetermined periods set by the insurance company (usually set at one year and five-year gaps). When you retire, your policy returns will keep you financially secure in the storm of inflation to ensure you can continue your lifestyle no matter the rising costs.
Additionally, investors gain access to expert-selected funds for the best returns on money invested. As the insured party, you get a portfolio truly made to fit your investment goals and long-term return requirements. ILPs are crafted to withstand the dynamic market – you can switch between funds at any time without incurring any cost.
There are investment-linked plans that take into consideration critical illnesses and permanent disability as well; should the insured party face either of these, the premiums are waived off and the plan stays intact. Some insurance providers even let you revise your insurance coverage if you cannot afford your premium. You may even take a break from paying your premium without your policy lapsing.
Dollar cost averaging:
Dollar cost averaging is a tried and tested investment strategy. It refers to a process where you invest a fixed amount of money, at regular intervals, over a long period of time. Let’s take an example to better understand the benefits of this investment strategy.
Say Andrew and Simon had $10,000 each to invest. Andrew decides to invest his $10,000 in into XYZ stock all at once. On the day he decides to invest, the cost per share is $50 so he ends up getting 200 shares for his $10,000.
Simon decides to invest his money in the same stock. However, he chooses to invest his $10,000 in installments of $2,000 over the period of 5 months. Therefore, on the first month, he buys 40 shares at $50 each, just like Andrew.
However, in the 2nd, 3rd, 4th and the 5th month, the cost of the shares are $40, $20, $40 and $50 respectively. Therefore Simon is able to buy 280 shares for his $10,000 as opposed to Andrew’s 200 shares.
Regular-premium investment-linked plans work in a similar manner. Your monthly premiums are invested into sub-units of various funds, every month for the entire premium payment term of your plan. This allows you to invest at average market prices. Therefore ILPs allow you to invest in burgeoning stocks without impulsiveness and guesswork otherwise required. Also, ILPs make investments more accessible by allowing you to invest smaller amounts of money over extended periods of time.
The verdict
Investment-linked insurance plan is one of the best financial products for anyone seeking long-term investment. They can ride out the storm when it comes to coping with market fluctuations. Experts advise that you choose your funds carefully taking into consideration the risk they carry as well as past performance. You can use the CPF Board risk classification as a broad guideline. You would also need to review your annual ILP statements to ensure that your policy is progressing as per your need and make changes accordingly to get the most out of your money. Finally, do remember to shop around and explore all available options for ILPs before settling in on one.
