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Why you should consider an investment-linked insurance policy

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An ILP not only provides protection in the event of an unexpected occurrence but allows you to invest in funds based on your risk appetite.

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Free Malaysia Today
An ILP is a life insurance policy that not only provides protection but allows you to invest in unit trust funds. (Freepik pic)

If you are looking for an insurance product that offers more than just protection, investment-linked insurance policies (ILP) may be the answer. These are an increasingly popular choice that combines insurance protection with investment opportunities.

Traditional insurance generally provides only insurance coverage without an investment component. Life insurance, for example, is designed to provide a payout of the coverage amount to the dependents of the insured in the event that something unexpected occurs.

An ILP, on the other hand, combines insurance protection with investment in unit trust funds. It offers protection against the risk of death, as well as opportunities for your financial needs or those of your loved ones should something happen to you.

In short, it is a two-in-one life insurance policy that not only provides coverage, but also allows you to invest in specific funds based on your risk appetite.

ILPs offer more flexibility compared with traditional insurance as they allow policyholders to withdraw some of their account value during their coverage period.

This type of insurance also allows policyholders to mix and match different types of coverage such as death, disability, illness, accident, and hospitalisation with unit trust funds from the insurer, providing potential benefits for those seeking a tailored insurance policy that aligns with their risk tolerance.

As such, the premium payments serve two purposes:

  • a portion allocated for insurance protection;
  • the remaining put into various investment funds.

So, why should you consider taking on an ILP? Here are some reasons.

1. Ability to add more protection

In addition to death and total/permanent disability benefits, you can enhance your level of protection by purchasing additional coverage for medical, critical illness, accident, and hospitalisation.

2. Freedom and flexibility

You have the freedom to invest additional funds when you have a surplus and the flexibility to withdraw money in case of emergencies. Moreover, you can switch your funds at any time to take advantage of market changes and increase your investment account value.

3. Transparency

You have full access to a clear and detailed record of all your transactions, allowing you to track where funds are going. You will also receive regular statements that provide a precise breakdown of your insurance charges, investment value, and the current unit price of your funds.

These statements ensure you are fully informed about your policy and can keep track of all your transactions, giving you peace of mind at all times.

4. Low insurance charges

Purchasing an ILP at a young age can bring about benefits such as lower premiums, which is advantageous for recent graduates or those who have just begun working.

Furthermore, by investing in your plan early and leaving your funds to grow over time, you can potentially earn higher returns and maximise the value of your investment account.

5. Controlled investment risk

Many people think ILPs are risky because they are dependent on market fund performance, but you can control your investment risk by selecting funds and switching between them.

So, should you get it?

An ILP provides both protection and investment opportunities, making it a popular choice for first-time and experienced investors. However, it’s important to note that ILPs don’t guarantee fixed growth.

As you age, more of your premium will go towards maintaining coverage, reducing the amount that goes towards investment.

Also keep in mind that an ILP is not assured of generating returns. As with any investment, there is a degree of risk – but the benefits, including flexibility and control over insurance, make it an attractive option.

This article was written by Hariz Hafiz for Qoala Malaysia.

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