Best Investment-Linked Policy (ILP) Singapore 2024

ILPs are dual policies with two core components: insurance and investment. The premiums you pay are first used to purchase units in a sub-fund of your choice (investment). Subsequently, a portion of the units is then sold to pay for insurance and other charges, while the rest remain invested in the sub-funds. 

When the sub-funds grow, so does your investment. As such, ILPs have become increasingly popular as a way of tackling two birds with one stone in recent years. 

It is true that an Investment-Linked Policy (ILP) has the influence of both worlds of Insurance and Investment. However, as with all financial products, an ILP is something to be considered with time, value as well as budget. It is true that an ILP potentially yields higher returns as compared to a whole life plan or endowment plan. This is made possible due to the fact that you, as a policy holder, will decide and choose the funds that will yield you the returns.

This is different as compared to a Whole Life Insurance plan because that is a participating policy that participates in the underlying participating fund, which does not offer a choice to the policy holder the flexibility of the areas of investment.

Similar to a Whole Life plan, ILPs do provide death coverage, TPD (Total Permanent Disability) protection as well as critical illness of different stages. The cost of insurance, or mortality charges, are deducted through the units invested via the unit trust.

ILPs often offer a diverse selection of funds that you can choose to invest in – usually over 90 or even hundreds or more unique individual funds based on your preferences. These include retail funds as well as Accredited Investor (AI) funds. Dividend-paying sub-funds can allow dividend payouts in cash or reinvestment of the payouts for compound investments. 

There are currently two options for ILPs:

• Single Premium Policy: one lump sum premium payment to purchase units in a sub-fund. Offers lower insurance coverage compared to Regular Premium Policy
• Regular Premium Policy: on-going premium payment. Insurance coverage can be adjusted based on individual needs and preferences. 

Annual inflation causes the daily cost of living to rise through micro- or macro-inflation; the necessity to combat this regular price increase (important and healthy for the economy) is through legitimate wealth growth instruments that demonstrate higher returns that are able to beat rising costs.

Here we compare in-depth the charges, returns and break even yields for the ILPs in Singapore: Best Investment- Linked Policy Detailed In-Depth Comparison Singapore.

Read: Fundsmith Equity Fund Review

Hedge your risk and distribute investment burden: Short-term investments often carry higher risks and often, higher burdens as well. Long-term investments allow for more buffer time to make changes to your strategy over the course of your life.

Multiply your earnings: The compound interest effect is powerful. When you leave your initial investments along, your earnings earn you even more money.

Be disciplined when it comes to your financial health: As with any kind of health, even financial health requires regular investments in time and resources – setting aside a regular budget helps ensure that your personal finances can grow properly.

Live worry-free: With your finances taken care of, properly diversified, and earning you more money and buffer space, you can enjoy quality time with your loved ones, doing the things you enjoy in life.

Fluctuating market prices can affect investments, especially lump-sum investments. ILPs ensure the ability of not just investment, but regular investments with lower risks due to pairing with insurance. This enables more cost-effective savings, as regular fixed investments drive down the average cost per share over time. 

The premiums that were previously being paid for insurance can serve a double-use in ILPs to purchase sub-funds with, thus allowing a chance for growth instead of stagnancy. 

The Regular Premium Policies can be structured accordingly to provide higher coverages for the same premium paid compared to other policies. On top of that, policyholders can determine the allocation of premiums towards preferred sub-funds, which allows much greater flexibility and potentially higher returns compared to the Single Premium Policy or a normal insurance policy. 

Another factor that contributes to regular premium being more advantageous is that it averages down the risks as the investment amount is spread across monthly over a volatile market. This greatly reduces the risk when the market is bearish (downwards) and invests systematically when the market is bullish (upwards). 

On the other hand, Single Premium ILPs allow for maximising potential returns. Due to the lower coverage, most of the premium goes towards investment. Some sub-funds even offer regular dividends to supplement the investor’s lifestyle. We do note that the amount for expected payouts will correspond to the level of risk being taken. However, due to this increased risk, the payout for Single Premium ILPs in event of death is higher than that of the Regular Premium ILPs even if the valuation of the sub-fund is lower than the placement amount. 

If you are concerned about rising costs of daily necessities (which may affect regular and retirement expenses) or your children’s tertiary education (maybe in 10-20 years), now is the time to begin looking into ILPs.

Due the possibility of compounding interest with your investment, the longer the amount of time your premium can spend within the sub-fund, the better the returns over time. Utilise ILPs to fund your retirement accounts, your regular life, or even the education of your children in the future.