Technical Savings and Investments Information

BENEFITS OF INVESTING IN INVESTMENT-LINKED POLICIES

As the investment performance of an investment-linked policy is directly linked to that of the underlying investment fund, it inherits all of the benefits as well as the risks of an investment fund.

When compared with other types of life insurance products, the major advantage of an investment-linked policy lies in the potential return on investment and flexibility. This flexibility allows an appropriate insurance programme to be tailored to each individual policyholder. Some of the benefits are outlined as follows:

1. Wide Spectrum of Investment Choices: The policyholder, in addition to the death benefit cover, will have the opportunity to devise his/her own investment portfolio based on the number of funds available to suit his/her investment objective. The policyholder can design his/her own investment strategy and invest into the different investment funds offered by the insurance company to balance his/her risk/return preference. He/she can also choose to switch between different funds to fit his/her own investment needs during different stages of his/her life cycle, or take advantage of the prevailing market condition.
2. Flexible Premium: One of the most attractive features of investment-linked policies is that the policyholder has the option to vary the premium, that is, to increase or decrease the amount of regular premiums to be paid as well as to add top-ups to the policy from time to time. Flexible premium enables the policyholder to pay higher amounts when his/her cash flow is strong. Provided that the balance in the investment account is sufficient to cover fees and related investment charges, the policyholder can also reduce, or stop altogether, payment of premium in situations where his/her cash flow is insufficient, eg when he/she loses his/her current job.
3. Variable Sum Assured: In addition to the flexibility of varying premiums, a policyholder can vary the sum assured. In the regular premium investmentlinked policies, a policyholder can choose his/her own sum assured, within certain limits, for any given premium. Subsequent to the completion of the contract, he/she can still adjust the sum assured up or down (again within certain limits) according to his/her new circumstances. Normally, such variations are subject to one change per year and underwriting requirement.  Compared to traditional whole life insurance, this is a convenient and lower cost version to increase the sum assured. The reason is that most whole life policies do not allow the increase of sum assured and thus a new policy will have to be issued for the additional amount.
4. Variable Death Benefit: There are three common options of death benefit. The policyholder can choose a level death benefit option, an increasing death benefit option or only 1% of the policy account value (the 101 Plan). For the concept of Death Benefit. It should be noted that a healthy and successful investment portfolio will increase the death benefit of the policy in the long run.
5. Partial Surrender/Withdrawals Allowed: The policyholder is usually allowed to make withdrawals for a specific minimum amount provided that the remaining balance is sufficient to cover fees and related insurance charges. Such a withdrawal is achieved by cashing in the number of units necessary to give the withdrawal amount. Compared to traditional life policies, the benefit of investment-linked policies is that the policyholder in times of need can withdraw units/cash from the policy without having to take out a policy loan where interest costs will be incurred; or having to surrender the policy in order to obtain its cash value and thus losing the protection.
6. Capture the Benefits of Investing in Investment Funds: A couple of obvious benefits derived from investing in investment funds include the access to professional fund management expertise and to a diversified portfolio through limited capital requirement.