Investment Linked Policy

Hi Folks! Today i am going to share with you on investment linked policy and how you can simply understand the rational purpose of this product. I have read in local articles whenever they interview those successful people and what are the investment product they have purchased for themselves and their loved ones. Most of them would say that the investment linked policy is their worst investment of all time. Literally some have said that they lost half of their investment. Upon looking at their age and the duration they have pumping to it, I somehow understand the behavior of the policyowner. Most people are still not familiar with this type of policy and they only see it as another tool for them to be assured with an investment in it. If you think of gaining more than what you have to put in, you need to do alot of your own revision. Do not rely too much from you banker or insurance agent. They are afterall a salesman that would have several clients in their pocket unless you are the high net worth individual. They cannot monitor solely on your portfolio even though they maybe the top in the bank industry. Anyway, It is possible to gain from this product. I have experience it and currently hold on to it. It works really well for me and also thanks to the personal banker that have done the great job!

What is Investment Linked Policy?

Investment linked policy requires quite abit of monitoring as it has insurance coverage component as well as investment in unit trust. This policy is being created for those who prefer to have some health protection. To be frank, if you prefer to do an investment. You should be prepared of the risk in losing some or all of your money. The investment in this policy can choose several unit trust product ranging from high risk category to regional category. The insurance coverage premium for this policy would increase as the policyowner get older as the risk of the policyowner would be higher. Generally, the policy has a time period from a minimum of 7 years and more. You can switch to another unit trust of the same risk level after the first year for free. Eventually, you will see your investment are not working hard for you because the amount that you are paying fixed every month will be allocated more to the insurance portion. The number of unit trust product you chose also matters in the allocation of the money to purchase the investment product. Even though we should diversify as much as possible to balance the risk but it would be good to understand how each of the investment work for you. Below is an illustration of a policyowner profile

Say for example,

Age: 24
Profile: middle to high risk
Duration period of holding the policy: 7 years
Invested amount every month: $500
Investment unit trust: Chose two type of unit trust
Type of risk in unit trust: High risk and emerging market

Personally, i felt that this profile would be more ideal for an individual to purchase this type of policy.

Reasons:
1) Dollar cost averaging - recommended to appreciate the volatility of the unit trust.
2) Emerging market category - it is one of the active movement in the fluctuation of the price which is reasonable to counter the ever increasing insurance premium in the policy.
3) High risk - High risk, high return. Sounds familiar? This would be strongly recommended for those that have high tolerance or the ability to recoup back their loss since they are still young
4) Chosen two type of unit trust - It is to better understand what you have pump in for each unit trust IF both of the unit trust are high risk. Some would propose to balance it with low or middle risk to balance the portfolio. AGAIN, the age should factor in.
5) Duration - Your time period in holding this policy also matters. As you gets older and holding this policy, you may have to consider your insurance portion in this policy.


Should Investment Linked Policy meant for you?

It all depends on you once again. To be frank, should you to diversify your portfolio and include ILP as part of it, you should go ahead in choosing high risk category of unit trust so that you can appreciate the "wave" of the price of each unit trust and gain something at the end of your contract policy. You would also need to monitor it by reading up news during your free time as your investment last for very long period. Make it a habit as it could affect the valuation of your current unit that you hold. Forecasting should be done to ensure you can make the next move in the unit trust you will be switching.

Advise

Sit down with your personal banker or insurance agent and try to work things out with them. Try to hear them on their explanation and advise. If you still not confident, try to consult anyone that have experience or currently holding the policy. I did the same before i invested. Get as many reference before you meet up with them on the second round. It is a long term commitment and if you fail to meet the contract term, you will be penalise with a fee and will lose your money that you have so far been pumping to it. So think, plan and decide. Cheers!