Investment-Linked Insurance Policies (previous : Investment-linked Insurance Policies in Singapore) are a mixture of what insurance policies and different investment vehicles can give you. Any type of investment requires due diligence from the investor to optimise its earning potential.

What is due diligence?

Due diligence – often referred to in the investing world as DD – is the investigation of all the facts about a possible investment. It basically talks about the important move an investor must take before entering into a binding contract with an investment authority.

There are questions you must first ask before getting into an investment; no matter how good it may sounds. This is what savvy investors do.

What should I ask before getting an Investment-Linked Insurance Policy?

Aside from asking what kind of investor you are and what plan best fits your policy – which is all legitimate questions in any type of investment vehicle – you also have to consider these eight things:

How many units can my premium buy?

Do you really have to know this? Yes. Why? In investing, the price is everything. If for example, most of your funds are invested in equities, you would rather buy investment units at a low price so that you can sell at a high price, because that means higher profits for you. This is why it’s crucial to consider how many units your particular premium can buy.

Investment-linked Insurance Policies are ideal for young professionals who are on a budget because they get to taste the best of both worlds. However, the lower budget does not necessarily mean great that an investment was a good plan.

When finding out how many units your allotted premium can buy, you will know if you think your premium are enough or if you still have to add more money. Also, this will give you more leg room to work on your other investments. You will know better how to mix and match different investment vehicles.

How many units can I buy with my premium top-ups?

The reason for this is the same as the first question. However, here is what you should consider when asking this question: When should I make my top-up? Some companies make you create a top-up schedule while other companies allow you to invest top-ups anytime that is convenient for you.

When you find out how many units your top-up can buy, you would rather apply top-ups on days when the market prices are really low or at the support zone. In this way, if the market goes up, you can earn from its upward move.

Different Benefits & Types Of Investment Linked Insurance (ILPs)

What happens to my account if I cancel some units?

Why would you cancel some units? Because of Investment-linked Insurance Policies flexibility, you are given the chance to go for premium holidays and withdraw money from your account. If you still have not paid after the grace period of your premium holidays, the company needs to get payment with your existing units. The same goes for withdrawing from your account. You are basically cancelling units by not making them grow for you anymore.

You should ask this question so that you can strategize when you would withdraw and when you would take a premium holiday.

Investment-Linked Insurance Plans In Singapore

Things You Should Consider Before Buying Investment-Linked Insurance Policies

How much is my account’s cash value?

Before applying for an Investment-Linked Insurance Policy, you will most likely receive a chart with a lot of numbers showcasing the projected amount of gains when you invest with a particular company. This chart will show your account’s cash value by a given year.

You should ask this question before and after obtaining your Investment-Linked Insurance Policy so that you would get a glance at how the fund performs. If, for example, in 20 years, you would see how much your money will be worth, take into consideration how inflation will play out. This will give you an idea if the investment is worth pursuing.

What are the average return on my investment and the death benefit payable to my beneficiaries if something happens to me?

These have got to be the most important questions when investing in any life insurance-related tools. Of course, you must know what your return on investment is. If you don’t know this, better not invest anymore.

You must know how much your beneficiaries will receive if something happens to you. The primary role of life insurance is to protect your income especially in cases that you have no control over – death, loss of jobs, and becoming physically challenged. What will happen to your dependents of these happen to you? This is why finding out is important so that you would know how the Investment-linked Insurance Policies protection work and if it is good enough to secure the future of the ones you will leave behind.

Should I go for a monthly or an annual premium?

This is an essential question that everyone should consider. Young professionals go for monthly because of the cheaper rates. However, you should also consider that going for monthly is mostly chopping down what can already be invested in your investment funds. Instead of being able to buy a lot of investment units in one go and letting it grow, you will have to buy a few units, let it grow, buy a few units again, and let it grow again, and so on.

Monthly payments also get inconvenient in the long run. However, if this is the best way for you, then go for monthly. It’s also good to ask the company if they will allow you to switch from monthly to annual when you get comfortable with paying annually.

What are the different charges involved?

Some companies have charges when you withdraw money from your account, but only up to a certain year. Some companies also have fund switching fees. Better be prepared for these cases.

What is the historical performance of funds within this Investment-Linked Insurance Policy?

Though most companies’ products look alike, their performances don’t. Some companies are good in equities while some are good in bonds. Some are great it terms of asset value while some have really high market capitalization.

In investing in Investment-linked Insurance Policies, you have to consider the historical performance of the funds in the Investment-Linked Insurance Policy being offered to you. Were there negative years? Why did that happen? How come some years are below the projected return rate? What happened in years when the returns are excellent?

Remember: When you do your part and research on what you’re getting yourself into, you are saving yourself and your money. Maximise the potential for your money to grow by making sure that you achieve your financial goals and that you are aware of every aspect that concerns your investment. It’s your money and your future. Make sure you keep them safe.

You may use this calculator to help you with gauging whether you need more protection and/or investments that may be answered by Investment-linked Insurance Policies.

Read more on the things you need to know about Investment-linked Insurance Policies.

Insurance Questions to Ask Your Financial Consultant

 

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C.E.O @ The New Savvy
Anna Haotanto is passionate about finance, education, women empowerment and children’s issues. Anna has been featured in CNBC, Forbes, The Straits Times, Business Insider, INC and The Peak Singapore. She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen). Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).

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