What is Investment Link Insurance? Are you really covered for life?
Investment-Linked policy (ILP) – a hot selling product of most life insurance company, it is also most policy holders favorite choice. Most likely when you are approached by an insurance agent, you are presented with ILP. Do you still remember why you got yourself an ILP? Do you understand the risks you are taking all these while as an ILP policyholder? Are you really covered for life?
What is Investment-Linked policy?
An investment-linked insurance plan is a life insurance that combines investment and protection. Your premiums provide not only a life insurance cover but part of the premium will also be invested in specific investment funds of your choice. You get to choose how to allocate your insurance premiums towards protection and investment. Source: Insurance Info
Why you buy into a Investment-Linked insurance?
Source: Insurance Info
Potential high returns also come with potential high risk. As the policy’s will potentially earn higher returns it also comes with potential investment lost. Unlike a traditional whole life policy, ILP may lapse early in situation of market uncertainty. So it may not be able to cover your whole lifespan even though you have been faithfully paying premium on time.
1. Rising Cost of Insurance
Unlike a normal whole life policy that comes with minimum guarantee cash values, the
premiums and charges in an ILP are non-guaranteed,where the insurance company reserves the right to change charges. This mean the charges can go up and down. If the insurance company raise charges, it could affect the sustainability of the policy in the long term as cost go up. However, the insurance company need to give sufficient notice to policy holder, usually six month ahead when the changes need to be exercised.
There’s no such thing as free lunch. When you are approached by an insurance agent, you are presented with ILP with extremely high protection, and so called the All-in-one policy, which cover for death ; disability benefits, 36 critical illnesses, Female critical illness, Cashless medical card, daily hospital cash allowance, accident benefits, and last but not least with high investment returns, the best part of this policy is only merely of RM 200/ month. However have your ever considered high protection equals high insurance cost and charges ? These low premium too good to be true All-in-one policy can’t sustain for very long and will lead to policy lapse.
As a consumer, when you are purchasing a insurance, you are indeed purchase a money contracts that could come to use in the future. Exercise due diligence and ask your insurance agent the following 3 questions :
1. What funds are the ILP invested in , any performance record in the past ?
2. Why are you recommending these funds to me , it is in line with my risk appetite ?
3. How much are the policy & fund charges ?
1) Be updated on your fund performance. Review regularly, switch funds if necessary.
2) Look at the illustrations, focusing on the “low” projections and gauge how long your policy will able to sustain.
3) Review your coverage as you age and reduce accordingly.
4) Don’t overload your policy coverage with minimal premium. It might be cheap now but will it really cheap in future?