ILP is a form of insurance plan that combines wealth growth and insurance protection into a single policy. The insurance premium will be invested first in the funds chosen for wealth building.
1. High flexibility – We may alter the insurance coverage to meet our requirements at various times of life, as well as remove the account value for immediate cash or even stop paying the premium if we are having financial troubles.
2. Leverage your money — With an ILP, your money acts as a multitasker, assisting you in achieving numerous goals at once. “One dollar performing the job of many” allows us to stay on track in life and focus our work in the office before selecting whether money creation or wealth preservation is more essential to us.
3. Low insurance costs with more flexibility – An ILP’s insurance component works similarly to a term plan, but with more flexibility. When we are young, the cost of insurance is incredibly inexpensive, and we also have the opportunity to add or reduce coverage as we see fit.
4. Higher potential return with complete control over monies invested – In contrast to a participating plan (such as an endowment or whole life insurance), you will have complete control over your investment decisions in an ILP. It is entirely up to you whether you want to pursue an aggressive strategy for better long-term gain or protect your savings with a safer portfolio during difficult times to reduce losses.
The Bad Side Of ILP
1. Potentially high initial sales fee — ILP often imposes a high initial sales charge, making it inappropriate for investors with a short investment horizon since it may have a significant impact on your total return in the first few years. The longer we can keep an ILP invested, the less it will affect the overall performance of our portfolio.
2. High insurance costs as we become older — Insurance costs for ILPs may climb fast as we get older, putting us in the position of having to cut coverage when it is most needed. Due to the high insurance costs, this might result in little or no increase in the account value, despite a great investment return.
3. No downside protection for policy returns — Because we have complete control over the investing sub-funds, we are exposed to the whole investment risk, with no guaranteed returns or downside protection. As a result, we are solely responsible for the portfolio’s performance and sub-fund selection. A badly managed investment portfolio might have a significant negative impact on our financial situation in the long term.
4. Limited fund selection – Unlike local fund houses or brokerage firms, which may easily provide hundreds or thousands of fund options, an ILP’s fund selection is often limited to fewer than 50 unit-trusts.
5. Early partial withdrawal costs — Withdrawing or surrendering an ILP during the first few years of its birth is normally either prohibited or subject to a pre-determined rate. This is comparable to participating plans (savings or whole life), where the surrender value is exceptionally low in the first few policy years.
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