3. Investment-Linked Plans
An investment-linked policy (ILP) is a financial product that is a combination of investments with certain life insurance coverage. While starting your investment journey with an ILP, not only does it help you to achieve your investment goals, it also allows you to stay protected with minimal insurance protection against unforeseen circumstances.
With an ILP, the premiums collected are used to purchase units under a list of funds. This is usually recommended by your financial consultant. You can choose to invest in one or multiple funds. Unlike a traditional savings plan where the investment strategy is determined by the insurers through their participating fund, an ILP enables you to choose your investments from a wide range of funds that matches your investment objectives, time horizons and risk profile.
ILPs and Unit Trust investments may seem similar, but why do some people prefer investing through an ILP than simply investing in Unit Trust investments? Here are the main differences between the two:
- ILPs typically have a minimum investment period whereas a direct investment in a Unit Trust does not require a minimum investment period.
- There’s a minimum holding period for your funds in an ILP. This is usually because when one decides to invest through an ILP, their plans are credited with additional Bonuses which are used to purchase additional bonus units of their selected funds.
- For retail investors like most of us, an ILP allows us to partake in Accredited Investor Funds. This is one of the benefits of investing through an ILP.
Let’s address the definition of an Accredited Investor (AI).
To be qualified and considered as an Accredited Investor, the following criteria is necessary for an individual:
- Net personal assets exceed $2 million in value.
- Income is more than or equal to $300,000 in the preceding 12 months.
Any normal investment platform does not usually offer a non-Accredited Investor access to AI funds due to its complexity, investment risks and the high capital outlay required. Therefore, for people who wish to invest in such class of funds with minimal capital outlay (as low as $200-300 per month) may do so through an ILP.