Investment Linked Policy

I have often been asked for my views about an investment-linked policy (ILP). It separates the term insurance and investments. Do they provide good value to the consumer?

In most cases, they provide poor value for the following reasons:

a) A large part of the savings for investments is taken away to pay the "distribution cost"
b) The premiums charged for the death benefit and riders are quite high
c) The distribution cost and effect of deduction are usually higher than the traditional policies
d) The projected returns are optimistically and potentially misleading.
e) Many consumers find the benefit illustration to be too complicated to understand.

In most cases, the consumer is better off in buying the death cover and riders in a separate policy and to get competitive quotes from several companies. The best cover is the group term insurance offered by SAF,  SAFRA and NTUC. Most people are eligible to participate in these policies.

It is better to invest in a low cost investment fund, such as the STI ETF available on SGX. This is explained in my book on financial planning, which is available here.

Tan Kin Lian