Pros and Cons of Investment-Linked Plans (ILPs) & Who Should Buy It?

What are investment-linked insurance policies (ILPs)? Comprising of both life insurance coverage and investment components, ILPs are often used to accumulate wealth. Here is our two cents on it, using PolicyPal's latest ILP product: Tiq Invest, so you can decide if this particular financial product is suitable for you.
tiq invest investment-linked plan savings

A wealth accumulation tool, investment-linked policies may take some time for many to understand, especially with its extreme fund flexibility coupled with unexpected additional fees.

Let us help you break it down!

What is an Investment-Linked Insurance Plan (ILP)?

An Investment-linked insurance policy (ILP) is a policy that has life insurance coverage and investment components. Most policies contain various packaged funds with diversified risks for consumers to choose from according to their risk appetite. These respective funds would have various sub-funds in stocks, bonds, and more.

Premiums paid by a consumer would be used to pay for units in the sub-fund of their choice. Some allow consumers to choose their own sub-funds, while others, like Tiq Invest, have pre-allocated packaged funds for consumers to pick. When needed, some of these units purchased may be sold to pay for other charges, such as management charge fees. The management charge fee is charged monthly by deducting away the units that customer have. The remaining amount would stay invested accordingly into the pre-allocated ILP Sub-Funds.

In the event of death, ILPs provide insurance protection for the policyholder. A claimant can be paid a lump sum payment of the policyholder’s account value or between 101% to 105% of the net premium. The net premium refers to the initial premium you placed in the policy taking into account any top-ups or withdrawals you made along the way.

Net Premium = Total Premium Paid + Top-up - Withdrawals

Why do people get Investment-Linked Policies?

Many people get Investment-Linked Policies for the following reasons:

  • For flexibility of cash flow in their insurance coverage and wealth accumulation.
  • For wealth growth. These individuals mostly have their basic coverage already done up.
  • For individuals considering temporarily taking a “one stone kill two birds” approach and are uncertain on whether to focus their finances on insurance protection or wealth accumulation.
tiq invest policypal pros and cons

Pros of Investment-Linked Plans

Liquid funds with zero lock-ins.

As long as the minimum value needed is present in the account, most Investment-Linked Policies allow for partial withdrawals at any time throughout the policy’s lifetime. One example is Tiq Invest. They allow withdrawals of S$200 or more with a minimum of S$200 in an account.

Moreover, policyholders have the flexibility to make top-ups according to their personal financial means. Some policies have options for both ad-hoc and recurring top-ups according to one’s preference, subjected to various minimum top-up values. Using Tiq Invest as an example again, you can refer to the table below for the options you can look out for.

Top-up OptionsRequirements to Top-up
Ad-hoc top-up
  • The minimum amount for ad-hoc Top-up is S$500
  • The maximum is capped at S$200,000 per transaction.
  • Top-up must be in multiples of S$100.
Recurring top-up
  • The minimum amount for recurring Top-up is S$1,200 per annum, S$600 per semi-annual, S$300 per quarter, or S$100 per month.
  • Top-up must be in multiples of S$100.
  • The maximum recurring Top-up per enrolment allowed is S$200,000.

Some Investment-Linked Policies allow policyholders to switch their packaged funds to suit their financial means. This increases the flexibility of ILPs as a wealth enhancement tool.

Death benefit

With a death benefit, claimants upon a policyholder’s decease or officiation of terminal illness are usually able to retrieve a lump sum of money. For Tiq Invest, this death benefit comes as a lump sum payment, which is the higher amount between the account value or 105% of the single Premium paid and 105% of the Top-up(s) less any partial withdrawal(s).

Cons of Investment-Linked Plans

Fees and charges

ILPs have many layers of unseen costs. Often, these fees amount to a hefty price. Sometimes more expensive than separate life insurance policies and investments combined. Below is a chart of ILP fees and charges from the Monetary Authority of Singapore.

Fees and Charges for ILP from MAS

As a result, the premiums placed into Investment-Linked Policies are not fully used to invest as some would be used to foot the costs of these fees.

However, policies like Tiq Invest make these fees more affordable. With low management charge fees of 0.75% per year, together with zero insurance coverage charge and fund switching charges, the fees accumulated will be considerably less compared to its competitors.

Relatively higher risk compared to other options

Like other financial investment products, an Investment-Linked Policy carries investment risk, which does not provide guaranteed returns. This may make ILP’s unfavourable when compared with other life insurance alternatives, like an endowment insurance plan.

However, to keep losses within their policyholders’ risk appetites, insurers have different packaged funds with diversified risks to suit different consumers.

With policyholders having full control over choosing their packaged funds, policyholders need to bear the financial risk of their investments. Hence, it is crucial for you to be aware of the amount of risk you are willing to take prior to purchasing a packaged fund. If you have the financial capacity to afford this risk, investing in an ILP might potentially bring returns higher than other participating plans (eg. whole life policies or endowment insurance plans).

What should I look out for before investing in an Investment-Linked Policy?

When choosing a suitable ILP, it is important to avoid common misconceptions. Beyond that, below are some traits that you can look out for when considering to purchase an ILP.

A low and affordable starting premium

This gives you room to experiment without breaking the bank. In the event that you wish to withdraw completely from the ILP, any penalties will be minimised as well.

Clear packaged funds

Compared to ILPs that allow policyholders who might not have the necessary investing knowledge to pick their own sub-funds, packaged funds are sub-funds pre-picked by insurers that are experienced in the market. This allows ILP investors a clearer understanding of the financial risk they are taking when they choose to purchase an ILP. Through this, they will be able to better select a fund that is more suited for their risk appetite.

Clear charges and fees

Clear charges and fees will help you estimate the total cost you might incur if you choose to purchase this ILP. This will allow you to better see where it will function in your financial plan, and weigh the growth it may achieve in the long run.

An ILP that fulfils these three points is Tiq Invest. With a low starting sum of S$1,000, 4 defined packaged funds catered to a range of risk appetites and clear fine print, it is an ILP you can consider if you are keen to purchase one.

What is Tiq Invest?

Tiq Invest is a single premium, investment linked insurance plan. With a starting principal sum of S$1,000, policyholders can choose one out of four curated packaged funds that suit their risk appetite best. Moreover, with also zero lock-in periods, Tiq Invest provides flexibility to policyholders to top-up, withdraw, and switch their packaged fund whenever they need to. This is done without any extra cost. This policy will mature on the day the policy was purchased (also known as policy anniversary) before the Life insured attains 100 years old.

Upon death or terminal illness, Tiq Invest provides additional insurance protection at no extra insurance charge. This protection comes as a lump sum payment to the policyholder’s claimant. It would be either 105% of the net premiums paid or the policyholder’s account value, whichever is higher.

Moreover, the whole premium is invested upon initiating the policy. Policy Protection will be up to specified limits by SDIC.

This policy can be purchased by any Singapore Resident with a valid NRIC or FIN between the ages of 17 to 60 (age next birthday), subjected to full knowledge and understanding of the requirements demanded by the plan.

You can refer to the table below for features of Tiq Invest:

DetailsTiq Invest
PremiumSingle Premium
Management Fee0.75% per annum
Types of Packaged Funds with Diversified Risk4 Types:
  • Conservative (80% fixed income, 20% Equities)
  • Moderate (40% fixed income, 60% Equities)
  • Growth (20% fixed income, 80% Equities)
  • Aggressive (100% Equities)
Lock-in PeriodNo lock in period
Principal CapitalS$1,000 (start)
Maturation PeriodIt matures on the policy anniversary immediately before the Life insured attains 100 years old.
Insurance Protection upon Death or Terminal IllnessThe higher of the two:
  • The account value or
  • 105% of the single Premium paid and 105% of the Top-up(s) less any partial withdrawal(s).
Are there additional insurance charges?No. There are no insurance charges.
Amount of premium invested100% of the premium will be invested.
Policy ProtectionUp to the specified limits of SDIC
Who can purchase this investment?Any Singapore Resident with a valid NRIC or FIN between the ages 17 to 60 (age next birthday) who has passed the Customer Knowledge Assessment

How can I learn more about Tiq Invest?

Learn more about Tiq Invest at PolicyPalFA here!

The policy is underwritten by Etiqa Insurance Pte. Ltd. (Company Reg. No. 201331905K).

Tiq Invest is an Investment-linked Plan (ILP) which invest in ILP sub-fund(s). Investments in this plan are subject to investment risks including the possible loss of the principal amount invested. The performance of the ILP sub-fund(s) is not guaranteed and the value of the units in the ILP sub-fund(s) and the income accruing to the units, if any, may fall or rise. Past performance is not necessarily indicative of the future performance of the ILP sub-fund(s).

A product summary and product highlights sheet(s) relating to the ILP sub-fund(s) are available and may be obtained from us via this link here. A potential investor should read the product summary and product highlights sheet(s) before deciding whether to subscribe for units in the ILP sub-fund(s).

As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. You should seek advice from a financial adviser before deciding to purchase the policy. If you choose not to seek advice, you should consider if the policy is suitable for you.

This content is for reference only and is not a contract of insurance.

Full details of the policy terms and conditions can be found in the policy contract.

This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the Life Insurance Association (LIA) or SDIC web-sites.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Information is accurate as at article reviewed date i.e. 16 February 2022.

Claire Toh

Claire is the Head of Growth of PolicyPal and ValueChampion. With over 5 years in the FinTech space, she has experience in planning and executing strategies within Singapore and in the Asia region. PolicyPal continues to work with over 20 insurers, serving over 150,000 individuals and assisting SMES with over $2 billion coverage and manage over $100 million premiums. Prior to InsurTech space, Claire worked on key accounts with regional brands during her time in digital media agencies.

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