What are investment insurance plans?
Investment-linked insurance policies (ILPs) are insurance policies that combine life insurance coverage with investment features.
When you pay your premiums, a portion of the funds is used to purchase units in one or more sub-funds of your choice. Some of these units are then sold to cover insurance and administrative fees while the remaining units continue to be invested.
ILPs offer life insurance coverage in the event of death or if included, total and permanent disability (TPD). The death or TPD benefit is typically determined by either the sum assured, the value of the units in the chosen sub-fund, or a combination of both, depending on the policy.
The value of the units in the sub-fund is influenced by their performance, which in turn affects the price of the units. Because of this, ILPs generally do not have guaranteed returns.
Why do people choose investment insurance plans?
Many individuals find ILPs attractive due to their flexibility.
When your financial circumstances change, you can adjust your investments by switching between different sub-funds. Additionally, you can increase or decrease your investment amount through top-ups or partial withdrawals, as long as you maintain the minimum sum assured requirement. However, it’s important to note that this will be subject to underwriting.
What are the types of investment insurance plans?
ILPs can be divided into two types:
- Single-premium ILPs
In this category, you make a one-time payment to purchase units in a sub-fund. Single-premium ILPs generally offer lower insurance coverage compared to regular premium ILPs.
- Regular premium ILPs
With regular premium ILPs, you make ongoing premium payments. This type of ILP may provide the flexibility to adjust the level of insurance coverage according to your needs.
What are the potential risks associated with investment insurance plans?
There are several common risks associated with ILPs, including:
- Investment risk
The returns on ILPs are not guaranteed. The value of an ILP depends on the performance of the sub-funds in which your money is invested.
- Insurance coverage charges
The cost of insurance coverage in ILPs increases with age. As you age, the units you hold may not be sufficient to cover the rising insurance charges.
For regular premium ILPs, insurers may also increase the cost of insurance coverage if there is a sustained rise in claims. Such increases would typically apply to an entire class of policies rather than just an individual policy.
