We’ve already covered the basics of Investment-linked Insurance Policies, the types of ILPs, and how different ILPs are from life insurance policies.
Now, before you get too excited to surrender your money to get ILPs, take note of this critical matter first: What are risks involved in investing in ILPs?
Why should you be aware of the investment risks involved? Well, financially smart women should know how to protect their hard-earned money. The New Savvy wants to make sure that you make smart financial choices so that you will achieve your goals and dreams. Now, let’s get down to business.
In every investment vehicle, a certain amount of risk is involved. The same holds true for ILPs.
ILP’s returns are not guaranteed.
The value of an ILP investment depends on the performance of the sub-fund and is directly linked to the movement of the market. Simply put: if the market is bad, your investments will go down. If the market is good, your investments will go up. You must take note, however, that the past performance of a sub-fund does not necessarily reflect its future performance.
The units you have purchased may be insufficient to cover your insurance fees.
As you grow older, you become a riskier client for insurance companies because you are more likely to get sick, become physically challenged, or pass away. To lessen this risk, insurance companies ask for higher fees for older policyholders – even if you keep the same coverage. This means that every year, even if you are paying the same amount of money for your policy, your premiums can buy fewer investment units to pay for your higher-costing insurance charge.
This is especially risky for those whose accounts combine a high insurance coverage and a sub-fund that isn’t performing well because the cash value may not be enough to pay for the life insurance coverage’s charges. To fix this, you may either raise your premium payment or lessen the insurance coverage.
Given these risks, when is the best time to get ILP?
Since ILP investments go around these risks, it is best to purchase ILP when you are already covered by a separate life insurance policy and/or if you are still very young and healthy. Remember: the best time to get life insurance is when you do not need it yet. There are benefits in ILP that cannot be taken through life insurance policies, and if you work smartly, and properly mix and match your investments, ILP will be an excellent addition to your investment portfolio.
Now, for the moment of truth: Is an Investment-linked Insurance Policy Right for You?
Ladies, here is one thing that you must remember when you are investing: Investing is like shopping. What one woman may consider a “good deal” won’t necessarily be a “good deal” for another woman. More than the fund performances, the numbers, and all the other complicated things, investing is about knowing yourself as an investor – understanding your
file, your current situation, and your financial goals. To know if ILPs will work for you, you have to know these things first.
ILPs will work for you want control over the amount of insurance coverage for your loved once. This vehicle is also perfect for those who wish to expose their money to greater growth while receiving the benefits of a life insurance policy. If you want a certain amount of control in your benefits and if you want to diversify your portfolio which may also serve as a buffer or protection for your money, you may consider investing in ILPs.
In investing in ILPs – and in investing in general – the risks involved must be the first thing that you will consider, no matter how risk-tolerant you are.
The best thing about Singapore and the rest of Asia is you have tons of investment choices. If ILPs will not work for you because you think that protecting your income is more important than growing your wealth, then you may stick with whole life and term insurance policies. If you want to diversify your portfolio, you can mix and match your investments with the help of a licensed advisor.
If you would like to know more about ILPs, feel free to reach out to The New Savvy. We are here to help you achieve your financial goals with smart financial planning.
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