Which is the right plan for you?
An investment-linked plan (ILP) is a life insurance policy that provides life insurance coverage and investment components. The premiums paid by the policyholder under this plan are used to pay for units in funds of the policyholder’s choice. Some of the units purchased are then sold to pay for life insurance coverage and other charges, while the rest remained invested in the investment funds. This is why ILPs have become popular and are a centrepiece in the product portfolio of various insurers.
Traditional Life Insurance or Investment Linked plans:
Risk appetite:
As mentioned above, investment-linked plans offer a benefit called cash value to the policyholder, where the premiums are used to purchase selected funds for investment. The amount is collected over time and can also be withdrawn during the policy term. It can be cashed out when the plan matures or when cancelled. But, like any other financial investment, ILPs come with investment risks. This means that returns are not guaranteed as the value of investments will fluctuate according to the market conditions. This can be an issue if the risk appetite of the policyholder is low.
two, which plan suits you better? Following are some pointers to help you determine which plan is right for you:
A traditional life insurance policy comes with a cash value as well. The difference here is the amount is guaranteed which makes this a more secure option. The premium that goes into cash value is fixed and built up over the years.
A traditional life insurance plan offers coverage to the policyholder at a premium which remains the same for the entirety of the policy term. This type of life insurance plan provides permanent death benefit coverage and a guaranteed or vested bonus or Outdividends.ofthe
With investment-linked plans, you generally start off with low premiums, however, as you grow older, your premiums increase. The insurance charges are paid off by selling your units, as the charges increases, more units will be sold leaving less for investment. You may need to top up your premiums to purchase more units if you wish to boost your investment.
Level of premiums:
Withdrawals:
With traditional life insurance, this is not an issue as the initial premiums paid are higher compared to investment-linked plans, and the premiums are fixed and do not increase as you age.
If the selected funds under ILPs perform well and the cash value has grown into a sizeable amount then you can opt to make use of your earnings to pay your premiums, withdraw money to make big purchases, grow your retirement funds, etc. You can withdraw from your ILPs cash value whenever you need financial help provided you maintain the value required in your policy. However, in traditional life insurance, you can only access the cash value that can be borrowed or withdrawn. The withdrawals can be taxed at ordinary tax rates and the loans if not paid in time, can result in lower benefits for the beneficiary.
Premium holidays:
In investment-linked plans, you can opt for premium holidays where if you are between jobs and you need to temporarily allocate your money towards other needs. During this, your ILP will be maintained by selling existing fund units to continue paying the insurance
ILPs and traditional life insurance policies each have their own benefits. What matters is that you should opt for a policy that fits all your requirements.
Traditionalcoverage.lifeinsurance policies offer a provision called Automatic Premium Loan (APL) that allows the insurer to pay any premium due at the end of the grace period from the cash value. These are generally associated with cash value life insurance policies and allow a policy to continue instead of letting it lapse.
Facebook:- https://www.facebook.com/PrudentialSingapore/
YouTube:- https://www.youtube.com/channel/UCWs_Qg2Rahok4kORir5w4eQ
Instagram:- https://www.instagram.com/prudentialsingapore/?hl=en
LinkedIn:- https://www.linkedin.com/company/prudential-assurance-company-singapore/
THANK YOU
You can even visit our Social sites: