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The current reality of ILPs, and why you shouldn’t be naive

[This post is written in response to the article Young Millenial POV: Why I Bought (And Cancelled) Two ILPs]

For an article that’s written in 2022, the writer is out of touch with the reality of ILPs (investment-linked policy).

Image courtesy of The Simple Sum.

There are generally 2 types of ILPs:

  • Traditional ILP
  • 101 ILP

Traditional ILP is the plan which many would feel they’re not making money, for the first 5 years at least. And might be up to 10 years till breakeven.

This is due to low investment allocation in the initial years: only a portion of premium is invested while the rest go to charges. (“Best of both worlds”: you get a decent insurance coverage with potential investment returns.)

All info can be read in the product summary.

It is possible to break even before 10 years, depending on fund choices and allocation. But I get it, sometimes by the 5th year, the agent who sold you the plan is not around, and you wouldn’t know what to do.

Traditional ILPs is meant for long term: at least 15 years, if not 20 years or more.

Image for illustrative purpose: why you should invest for the long term.

101 ILP is the “newer” version, although AXA and Zurich were among the pioneers (as early as 2013 if I recall, when I first learn of it; it could be earlier.) HSBC Insurance had Growth Manager (if I recall the name right), as early as 2011 (when I first joined the industry), if not earlier.

100% premium is invested from day 1. Charges will be deducted backend.

It is called “101 ILP” because it used to be that it would provide that additional 1% insurance coverage or 101% of premiums paid.
(Do note that currently, different 101 ILPs provide varying coverage, ranging from only 1% of premiums paid to 105% of premiums paid or investment value, whichever is higher; do read the product summary or product brochure.)

It is like investing in unit trust (currently, most 101 ILPs do access unit trust funds), with additional insurance, albeit minimal. Hence, it is sometimes called an “insurance wrapper”.

Clients get to see investment performance from first year, but still recommended to hold it for at least 5 years. Most 101 ILPs would cater to 10 year policy term and longer; few cater to as low as 5 years.

So that’s in brief.

It doesn’t pay to be naive. As Cat Steven would sing,

“You’re still young, that’s your fault
There’s so much you have to go through”

When in doubt, seek professional advice.

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