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I’ve been helping a client check out an investment linked policy, and here are two interesting points to help people make sense of investment linked policies:

1) What is an Investment-Linked Policy (ILP)?

Basically an ILP is a policy that combines term insurance with investment. Essentially ILPs consist of 2 parts:

A) a term insurance portion which gives you the insurance coverage and
B) the investment portion which would give you the investment returns.

There are two important features of ILPs:

A) For the term insurance portion you usually get a smaller sum assured than a ‘pure’ term insurance. For instance, one particular ILP derived its sum assured based on 4-5 times of the annualized premium. So if you are paying an annual premium of $1,200, then the sum assured will only be $1,200 X 5 = $6,000. Now compare this to a ‘pure’ term insurance. The same amount of $1,200 per year can get you a 30 year term insurance of (now go ahead, make a guess):

1)$100,000
2)$200,000
3)$300,000
4)$400,000

Have you made your decision? Read more…