Every investment vehicle involves pros and cons, and the Investment-Linked Insurance Policy is not exempted. When finding the proper investment for you, you must do your part and research everything you can – all the good and the bad things.

There are a lot of appealing pros for Investment-Linked Insurance Policies which are especially beneficial for young professionals. These are some of the reasons which make Investment-linked Insurance Policies a good investment to add to your portfolio:

You can choose where your money will go to

If you put your money in Investment-linked Insurance Policies, it will be placed in your chosen sub-fund. The returns of your investment depend on the value of the assets in the fund. The performance of the sub-funds may be tracked on a daily basis.

If the markets are good, you are gaining money

If you invest your money in Investment-linked Insurance Policies, the returns are linked to the performance of the sub-funds, and thus, are directly affected by the market’s movements. Of course, just like any other investment, this can go the other way. If the market is bad, your money goes down as well. However, there is a solution for that.

Fund switching, withdrawals, and top-ups are allowed

When you feel uneasy about the market’s current situation, you can simply transfer some of your money to more conservative funds. Investment-linked Insurance Policies also allow withdrawals and top-ups, which gives you the flexibility to re-invest your money in other investment accounts, or to maximise your investments potential by buying more investment units.

Insurance Questions to Ask Your Financial Consultant

It exposes you to different types of investment funds

Investing in Investment-linked Insurance Policies widens your investment portfolio and diversifies your risk. These are some of the common funds offered in Singapore:

What are the Pros and Cons in Investing in Investment-linked Insurance Policies?

Equity Funds: These are invested in publicly listed companies. These funds aim to increase your capital within 5-10 years. This type fits investors with medium to high-risk appetite.

 

 

Income, Fixed Interest, and Bond Funds: These are invested in government securities, corporate bonds, and other fixed-income instruments that allow your money to grow in four years and above. This is suitable for more conservative investors with a medium risk appetite.

Cash Funds: Cash Funds are also called Money Market Funds and are called as such because they are mostly invested in cash, bank deposits, and other money market instruments. This is perfect for those with really low-risk appetite. Its investment horizon is up to three years.

Balanced Funds: Some funds offer a variety of equity investments and fixed interest instruments. This is good for people who can be risky but also aim for stability.  Its investment horizon is more than 4 years.

Geographically Specialised Funds: These are funds that cover investments particularly restricted to individual countries or region. Investors with really high-risk appetites can go for this one for the long term. Its horizon is at ten years.

In every investment vehicle, a certain amount of risk is involved.  The same holds true for Investment-linked Insurance Policies.

Investment-linked Insurance Policies’ returns are not guaranteed

As stated earlier, there are two sides of the sword. The value of an Investment-Linked Insurance Policy 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. Plus, you get the option of switching your funds when the market makes you feel uneasy.

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.

When planning to invest in anything, remember to take time to study and understand what you are deploying your money to.

Read more about Investment-linked Insurance Policies in Singapore here.

6 Investment Risks Every Investor Should Know

 

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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).