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Investment-linked insurance policies, also known as ILPs for short, are a class of insurance products that have generated a lot of discussion over the years in Singapore.
Some people might be wary of ILPs because they do not really understand how these policies work and they can sound very complicated. It’s perfectly understandable that you wouldn’t want to part with your cash for something you don’t understand and seems difficult to navigate, especially since there are many different ILP policies on the market.
To understand if ILPs can be useful for you, you need to start by identifying your own needs and financial goals. This could extend from things like the amount of time over which you intend to grow your money to which life milestones you want to achieve and will help you decide which ILP is suitable in helping you to achieve your long-term goals.
In addition, you can evaluate what is stopping you from considering ILPs, by finding out if these so-called ‘truths’ are actually true. Here are some of the most common concerns you will hear from people about ILPs:
1. “Agents only sell you ILPs because they get a huge commission.”
Since 2017, the Monetary Authority of Singapore (MAS) has made some significant changes to the way agents are paid their commissions. There is now a limit to upfront commissions, and commissions are spread out over a specified period instead. This is a move aiming to shift the focus from the upfront commission to customers’ needs.
What this means in a nutshell is that there is a cap on the agent’s first year commission and the remaining commission is deferred to a later stage. Agents now have more of an incentive to have you not only sign up for a plan, but also ensure that you continue to be satisfied with it over an extended period of time.
2. “If I lump my investments and insurance together into an ILP, my investment returns will be impacted as the premiums I pay will go towards the increase in insurance coverage charges as I grow older. As such, it might not be worth the money.”
This is another phrase you will hear quite often when it comes to ILPs. This common misunderstanding about the return on investment of ILPs stems from the misconception that all ILPs are essentially the same. In actual fact, there are two broad categories of ILPs – those meant for protection and those meant for investment. The statement above pertains more to ILPs meant for protection.
When it comes to ILPs with a stronger focus on protection coverage, it is true that some of the units invested are allocated to payment of insurance charge. As you age, your premiums rise and a larger proportion of your premiums go towards paying for your whole life coverage instead of accumulating returns on investment.
If you are looking for something with minimal insurance coverage to minimize any impact on your investments, you can consider an investment-focused ILP. These policies allocate a larger proportion of your premiums to growing your money, and there are even ILPs in the market that allocate 100% of the premiums paid to invest in ILP sub-funds, helping to maximize your investment return. Other than opting for an investment-focused ILP, you also can look out for ILPs that provide bonus that help to cover your costs and boost your returns.
3. “My money is locked in and I do not have any flexibility when I buy an ILP.”
Some people have the impression that ILPs are inflexible when it comes to cashflow management. For instance, they are afraid that they might be unable to take out any money or be penalized for making withdrawals. These concerns are understandable, as changes in life stages will bring about different financial responsibilities including some unforeseen ones.
Thus, it is important to select an ILP that is aligned with your financial goals and provides the flexibility you require for peace of mind. When we talk about flexibility, what exactly are we referring to? Here are some features that you can look out for in an ILP:
This feature provides you with the option to partially withdraw some of the funds that you have put into the policy. You can usually do this after contributing for a specified minimum time frame. This feature provides you with the liquidity to tide you through any shorter-term needs or milestones in life such as the birth of a child or upgrading your house.
You might be thinking “Do ILPs now also come with an all-expenses paid trip to Japan?”. I hate to break it to you, but that’s not what a Premium Holiday is. Some ILPs offer the option of reducing or taking a short “break” from premium payments. This can be very useful in the case of a temporary loss of income, or unforeseen financial responsibilities such as caring for an aged parent.
As people approach their retirement years, the need to protect their money and move away from riskier investment products becomes greater. Many people might not know that some ILPs actually allow you to manage the risk profile of your investments to a certain degree, and choose how you want to reallocate your investments to better suit the life stage you are at or approaching.
At the end of the day, some of these concerns are certainly valid, while some might be founded on a lack of understanding of the product. Whatever the case, your key focus should be to select the plan that best suits your goals and needs.
Here’s how AXA Wealth Accelerate can help you achieve your financial goals
ILPs have been around for a long time, but that doesn’t mean they have stayed the same. Similarly, needs and lifestyles have changed as well, which has brought about the need for products that are more comprehensive in how they support one’s goals and responsibilities
With that in mind AXA’s new ILP product, AXA Wealth Accelerate (AWA), was designed to take people’s concerns into consideration to help them meet their financial goals on their own terms.
AWA can accommodate different medium-to-long term investment goals with various minimum investment periods options, while offering bonuses to help speed up your returns.
Here’s a quick summary of some of the key features that make this product different:
- Multiple bonuses along the way – you not only get to boost your returns, but also get rewarded for your loyalty as you keep investing
- Flexibility to choose between different minimum investment periods and ILP sub-funds to align with your financial needs and risk profile
- Take a Premium Holiday after Initial Contribution Period when you need a break from paying premiums if there are any unexpected circumstances such as medical expenses for your loved ones or a sabbatical break.
- Partial Withdrawal – you can make the first two partial withdrawals* after Initial Contribution Period and during Minimum Investment Period, each up to 2 times of your prevailing annual regular premium from Accumulation Units Account at no charge, should you need money for shorter-term financial commitments, such as children’s education or home upgrading. *Subject to minimum partial withdrawal amount and minimum account balance limits.
Here’s a simple video to help you better understand how AWA’s features help you meet your financial goals:
Eva is a 30-year old PMBE and has chosen to purchase AWA to help her grow her money to achieve her various goals. For as little as $300 a month, she sees her account grow quickly over the initial first few years of her policy thanks to the bonuses paid out to her.
When she is about to give birth and start a family, she can withdraw part of that investment to help with the financial support needed for her kid. As she approaches retirement and passes her minimum investment period, she continues to receive loyalty bonuses and is able to make regular withdrawals to support her in her retirement years.
Planning for the future is something we all have to do at some point. AXA Wealth Accelerate makes it easier by giving your wealth accumulation a boost. Click here to find out more about this new product.
This plan is underwritten by AXA Insurance Pte Ltd (“AXA”). This advertisement is not a contract of insurance and not for use outside Singapore. The precise terms and conditions are specified in the policy contract. This advertisement is for your information only and does not have any regard to your specific investment objectives, financial situation or particular needs. You may wish to seek advice from a financial consultant before making a commitment to buy the product, and if you choose not to seek advice, you should consider whether the product is suitable for you. Buying a life insurance policy is a long-term commitment. An early termination usually involves high costs and the surrender value payable may be less than the total premiums paid. Buying an Investment-Linked Policy (“ILP”) comes with investment risks, as the value of units in the ILP Sub-fund(s) and income accruing to the units, if any, may rise or fall, which may lead to possible loss of the principal amount invested. A Product Summary with details on product features and charges and a Product Highlights Sheet in relation to the ILP Sub-fund(s) are available and may be obtained from a financial consultant representing AXA. You should read them before deciding whether to subscribe for units in the ILP Sub-fund(s). Protected up to specified limits by SDIC. This advertisement has not been reviewed by the Monetary Authority of Singapore. All information is correct as of 11 November 2019.