If you're seeking for an insurance plan that provides more than just protection, investment-linked insurance policies (ILP) could be the solution. These are a growing popular option that combines insurance coverage with investing options.
Traditional insurance typically offers solely insurance coverage without any investing component. Life insurance, for example, is designed to pay out the coverage amount to the insured's dependents in the event that anything unforeseen happens.
While traditional insurance has its merits, ILPs offer a unique combination of protection and potential growth. This dual-purpose approach can be particularly appealing for those looking to maximize their financial strategy. By allocating funds to both insurance and investments, policyholders can work towards multiple financial goals simultaneously.
An ILP, on the other hand, combines insurance coverage and investment in unit trust funds. It provides protection against the possibility of death, as well as opportunities for your own or your loved ones' financial requirements if you die. In a nutshell, it is a two-for-one life insurance policy that not only offers coverage but also allows you to invest in specific funds based on your risk tolerance.
ILPs provide more flexibility than standard insurance by allowing policyholders to withdraw portion of their account value during the coverage period. This type of insurance also allows policyholders to mix and match different types of coverage such as death, disability, illness, accident, and hospitalisation with the insurer's unit trust funds, which could be beneficial for those looking for a tailored insurance policy that matches their risk tolerance.
One of the key advantages of ILPs is their adaptability to changing life circumstances. As your financial situation evolves, you can adjust your coverage and investment allocations accordingly. This flexibility is particularly valuable for young professionals who may experience significant changes in income and responsibilities over time.
As such, premium payments fulfill two functions:
A portion is assigned for insurance, while the remainder is invested in other funds. So, why should you take on an ILP? Here are a few reasons.
Ability to add extra protection
In addition to death and total/permanent disability benefits, you can increase your protection by acquiring supplemental coverage for medical, critical illness, accident, and hospitalization.
Freedom and flexibility
You have the option to invest additional funds when you have a surplus, as well as the ability to withdraw money in an emergency. Furthermore, you can swap funds at any time to capitalize on market fluctuations and raise the value of your investing account.
Transparency
You have complete access to a clear and detailed record of all your transactions, which allows you to track where your money is going. You will also receive periodical statements detailing your insurance premiums, investment worth, and the current unit price of your funds. These statements ensure that you are completely informed about your policy and can follow all of your transactions, providing you with peace of mind at all times.
It's worth noting that the transparency offered by ILPs can be a valuable educational tool. By regularly reviewing your policy's performance and allocation, you can gain insights into investment strategies and market dynamics. This knowledge can be beneficial for making informed financial decisions beyond just your ILP.
Low insurance rates
Buying an ILP at a young age might provide in benefits such as lower premiums, which is useful for recent graduates or those who have just started working. Furthermore, by investing in your plan early on and allowing your assets to grow over time, you can potentially earn larger returns and increase the value of your investment account.
Managed investment risk
Many people believe ILPs are hazardous since they rely on market fund performance, but you can reduce your investment risk by picking and rotating between funds. While ILPs offer managed investment risk, it's crucial to understand that they still carry some level of risk. Market fluctuations can impact the value of your investments, and there's no guarantee of returns. However, the ability to diversify across different funds within your ILP can help mitigate some of this risk.
Should you get it?
An ILP offers both security and investment potential, making it a popular choice among both new and seasoned investors. However, it is vital to remember that ILPs do not ensure consistent growth. As you get older, more of your premium will go toward keeping coverage, which reduces the amount that goes towards investing. Keep in mind that an ILP is not guaranteed to generate returns. As with any investment, there is some risk, but the perks, such as flexibility and control over insurance, make it an appealing choice.
Before deciding on an ILP, it's essential to carefully consider your financial goals, risk tolerance, and long-term plans. Consulting with a financial advisor can help you determine if an ILP aligns with your overall financial strategy. Remember, while ILPs offer unique benefits, they may not be suitable for everyone, and it's important to weigh all your options before making a decision
