11 Best Investment-Linked Policies in Singapore

Minimum Premiums

There are 2 types of ILPs – single premium ILPs and regular premium ILPs. While most opt for a regular premium ILP which allows them to make monthly or annual payments throughout the policy term, you can also opt for a lump sum payment with single premium ILPs. 

With regular premium ILPs, there are minimum premiums to be paid. Depending on your policy of choice and your total investment term, your premiums may vary. Across different policies, the lowest premium you can get is a monthly payment of $200 and can range up to about $750 or more.

Most policies also allow you to increase your premiums, should you decide you want to. However, there is a minimum increment amount stipulated by the insurance company as well.

Failing to meet the payment punctually may result in you being excluded from future bonuses or additional fees.

Minimum Investment Periods

Due to the nature of these investments, most policies implement a minimum commitment period of 5 years, spanning to 25 years. However, there are some policies such as the Manulife InvestReady Wealth II which has a shorter commitment period of only 3 years.

As such, to ensure you can receive substantial returns from your ILP, you need to be confident that you can commit throughout the full period.

If you wish to extend your policy term, most plans allow you to do so as well. However, do note that most payment terms have an interval of 5 years – meaning to say, you will not be able to extend your policy by anything less than that.

Availability of Riders

Apart from the basic coverage you will receive from your plan, there are also options to purchase riders for your policy. Of course, that also means you will have to pay more for these additional benefits.

Depending on the company and flexibility of the plan, there are different types of riders being offered. Some of the most common ones include riders for cancer waiver, critical illnesses waiver, and payor benefit.

For a quick understanding, cancer and critical illnesses waivers will either pause or waive any remaining premiums for you to enable you to focus on treatment and recuperation.

In the event where you pass away or are permanently disabled, the payor benefit will pay for the premiums of your loved ones as well. As this is a general guideline, specific terms and conditions also vary for different policies.

Death & TPD definitions

When getting covered by ILPs, death is the most common basic coverage you will receive from your policies. However, the claims might vary more strictly or broadly according to different policies. Some key factors to note when looking out for these terms are:

• Whether the death was caused by an accident
• Whether the person insured passes away within a stipulated period from accident date
• Age of passing of person insured

In some cases, there are also policies also allow for total and permanent disability (TPD) coverage, categorised into 2 different types of TPD – presumptive TPD and non-presumptive TPD.

The former refers to total loss of sight in one or both eyes, or loss of one or two limbs. Non-presumptive TPD, on the other hand, refers to a disability that leaves the policyholder incapable of working for income.

Depending on what types of life coverage you are looking for, this segment may be something to look into.

Compulsory Fees

With the assumption that you will be committing to your plan without any changes made, you will only be incurring compulsory fees from your policy. With the varying types of compulsory fees, this is something to consider and compare before committing to a plan.

Typically, the compulsory fees may include two or more of the following, and will decrease after about a decade of committing to your plan:

• Fund Management – depending on type of funds chosen, can be up to 1.75% per annum

• Initial Charge – fees payable for starting your account and establishing your policy

• Policy Charge – fees payable for maintaining your policy

Editor’s Note

If the policy invests directly into the funds, the fund management fees are already calculated in the returns you see and you will only incur the initial & policy charges.

Should the insurance company invests through its own funds, you will be charged an additional layer of fee – the fund management fee. This will be covered in the later section.

Further reading: Funds vs ILP sub-funds

Bonuses

Funds Offered

Now, you may be wondering – why do I have to pay compulsory fees for ILPs when I can directly invest into funds yourself?

The most direct answer for this lies with the credibility and convenience an insurance company brings for you.

And because insurance companies have the team and capability to invest in large amounts, they get access to funds that retail investors do not have access to.

Such funds are usually aggressive with higher potential returns that will be balanced with other funds to manage your risks – allowing you to get higher returns for the risks you take.

Investing into Company’s Sub-Funds VS Directly into Sub-Funds

When talking about funds, it’s important to note if you’re investing via the insurer’s sub-funds or directly into them. This will make a difference in the returns that you see from your policy.

The good thing company sub-funds are also normally managed by a team or firm apart from where the units are being held. For example, an insurance company partners with Blackrock – a world-renowned asset management company.

With the credibility of these professional firms who also handle global clients, it perhaps gives you greater ease of mind knowing your money is in the hands of fund managers who are experienced in the industry.

However, the downside to this is that you’re paying an additional layer of fund management fees with no guarantee of making higher returns than investing directly into the sub-funds.

These fees can go up to an additional 1.75% per annum that you have to pay for.

Savvy retail investors usually recommend purchasing directly into sub-funds if you’re investing in unit trusts just because of the additional costs that are not worth it.

So make sure to choose an ILP that invests directly into the unit trust instead of their own subfunds.

Premium Holidays

Premium holidays are periods when you can choose to temporarily stop paying from your premiums, so long as your account has sufficient value to do so. While this sounds like a flexible option, there are some conditions to look out for:

• The minimum required number of years you must have continuously and punctually paid for your premiums
• Whether there is a premium holiday charge
• Whether your riders are affected during your premium holiday

Bonuses

Throughout the term of your policy, you will be rewarded with a couple of bonuses to incentivise you for your commitment to the plan.

The main bonuses you will receive are initial bonuses (also called welcome bonus, or first-year bonus), as well as loyalty bonuses after you have committed to the plan for a minimum number of years.

Potential Returns

The returns you receive will be based on your commitment period, as well as the performance of the funds you choose to invest in.

Depending on your risk appetite and how much capital you have, you can choose from low to high-risk rating funds. Optimally, it will be good to have a mix of both high and low-risk funds to balance your portfolio well.

Additionally, it will also be good to do a little research on the funds that you are interested in to get a better idea of how they might perform over time, and if the companies might be affected by volatile development of events.

However, it is also important to understand that as ILPs, like all other investments, are ultimately reliant on market movements, you are not guaranteed high returns, or possibly even the amount you initially invested.

To reap the full benefits of returns, you are advised to commit till your plan fully matures after a couple of decades.

Fund Switching

Some policies allow the flexibility of switching funds, should you decide you want to allocate your units in other portfolios. While some companies allow you to do this without cost, there are some policies that require you to pay a small fee for fund switching.

Withdrawals

It is also good to find out if your policy allows for withdrawals. There are 2 types of withdrawals – partial and general withdrawals.

A partial withdrawal can be done upon request and allows you to receive a one-time payout. General withdrawals, on the other hand, is a stipulated withdrawal that you can perform at certain intervals of the year (e.g. yearly, half-yearly, monthly, etc). Do note that there might be charges for withdrawals.

Top-Ups / Increasing or Decreasing Premiums

As time goes, you will need to adjust how much you’re investing regularly.

Most of the time, you would want to increase as your salary increases, so making sure that you can increase your premiums, or at least make top-ups is important.

Otherwise, you might have to buy a new policy – which is advantageous to only your financial advisor and the insurance company.

Of course, the ability to reduce also gives you a sense of comfort knowing that you can reduce them when you need it.

The Financial Advisor

Often not talked about, your financial advisor plays a huge part in managing your investments and providing you with financial advice.

Many financial advisors claim that they are able to manage your investments due to their experience in managing for past clients.

Based on our experience, most financial advisors don’t even know how to pick individual stocks/bonds.

Their knowledge lies in knowing how to pick unit trusts based on the asset, sector, and geographic allocations, and the fees and past returns.

In my opinion, this is the most basic level that someone investing in unit trusts should know.

Often, financial advisors will mention that they have the support of their team and investment managers to assist them with this.

Though this still gives them an advantage over someone who doesn’t know how to invest, it’s still critical to understand if your advisor actually knows how to invest or is just trying to sell you something.

Ask for their performance track record for past clients and their own investments.

Ask their thought process on how they select their own investments and why they do it.

They don’t have to give you in depth answers, but the ability to give you sound reasoning on their choices will give you a rough gauge if he/she knows their stuff.

If you’re not sure, you can always talk to one of our partners – we make sure they actually know how to invest.