Investment Linked Policy
From Financial Literacy Wiki
Investment Linked Policy (commonly known as ILP) differs from traditional insurance policies in that it allows the policyholder to combine financial protection with investment in unit trusts managed by the insurance company or a third party fund manager.
If a policy holder dies or suffers from permanent and total disability, the insurance company pays the sum assured or the investment value of the units in the policyholder's account, whichever is higher. While the sum assured is guaranteed, the investment value of the unit trusts you hold can go up or down depending on the economic and political environment that the unit trusts is investing in. Thus, unlike traditional life insurance policies where the insurance company bears the risk of providing protection, in an investment linked policy, it is the policy holder who bears the risk. Because such products are primarily investment products, the sum assured in mosts cases is smalled compared to traditional life insurance.
Investment linked policies are classified into two types of policies.
As the investment linked policy, similar to the endowment policy, have investment feature inside, one has to make sure he is adequately covered by term policy and whole life policy first. In addition, since ILP also invest in unit trusts, one should also understand this investment tool better and choose those that match their risk profile and investment objectives. The track record of the fund manager should also be factored into consideration.
