The regular premium investment linked product is an essentially a combination of 1 year renewable term PLUS investment. Since the life insurer does not provide value add service by managing the risk of the underlying investment, there is no reason to buy such a product. It will be more straightforward just to buy a separate term insurance and invest the difference (which is what an ILP does). Here are some “advantages” which an adviser usually uses when proposing a regular premium ILP:
- “A regular premium ILP has a very low cost insurance charges when a person is young”. My response: “A standalone term insurance is also very low cost”
- “A regular premium ILP allows high long term gains.” My response: “Future return is not guaranteed and potential long term gains can also be possible using unit trusts.”
- “A regular premium ILP allows a person to go on premium holiday.” My response: “If you buy term and invest the difference, you can do likewise because you can do your own ‘premium holiday” by stopping the investment and selling units to pay for the term”
- “A regular premium ILP allows a person to increase his coverage.” My response: “No big deal, as long as a person is insurable, he can also ‘top-up’ his term coverage by buying another term policy.”
Therefore, a regular premium ILP is considered an “inferior product.” because it can be implemented using plain vanilla term and separate unit trusts.
Here are some Straits Times article on the subject. The articles can be found starting page 191 onwards from this document HERE
- Insurance "time-bomb" set to explode dated 12 Feb 2005.
- Wanted: More transparency in investment-linked policies dated 12 Feb 2005.
- Elderly and the sick face highest risk of hidden costs in policies dated 15 Feb 2005.
- Insurers need to be more upfront about 'hidden' costs dated 16 Feb 2005.
- Case calls for more transparency dated 19 Feb 2005.
- Is your insurance policy a waste of money? dated 27 Feb 2005.
- Five reasons why ILPs are an insurer's best friend dated 3 March 2006.
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