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Investment-linked versus participating life insurance policies

Investment-linked

October 29, 2018 | 2 min. read

Compare investment-linked insurance policies (ILPs) and other policies with cash value, such as participating whole life and endowment policies.

Key takeaways

  • ILPs and participating life insurance policies both have investment components.
  • ILPs do not have any guaranteed cash value, while participating policies have a portion that is guaranteed.
  • With ILPs, you bear all the investment risk.

Both investment-linked insurance policies (ILPs) and other life insurance policies with cash value, such as participating whole life and endowment policies, have investment components.

However, there are important differences between the two. Use this table to compare the two types:

  • Insurers may choose to smoothen bonuses to avoid large fluctuations in bonus declared year on year.
  • This means that the returns from your policy will not necessarily track the ups and downs of investment markets.
ILPs Participating whole life and endowment plans
Investment mandate
  • Premiums are invested in one or more sub-funds.  Each sub-fund has its own investment objective.
  • Premiums go into the insurer’s participating fund.
  • Insurer decides how the fund will be managed.
  • The fund’s performance depends on its investment performance, claims experience and expense levels. 
Bonuses
  • There are no bonuses.
  • The ILP’s value depends on the performance of the sub-funds you invest in.
  • Bonuses depend on the performance of the fund.
  • Only bonuses that have been declared by the insurer are guaranteed.
Returns track the ups and downs of investment markets?
  •   Yes. Returns are directly linked to the value of the sub-funds. 
  • Depends. Insurers may smoothen bonuses to avoid large fluctuations in bonus declared year on year.
Cash value
    • You may withdraw the full cash value or make partial withdrawals. Charges may apply.
    • Early surrender/termination of the policy may result in a cash value that is less than the total premiums paid.
    • Cash value takes a few years to build.
    • You may withdraw the full cash value or make partial withdrawals.
    • Early surrender/termination of the policy may result in a cash value that is less than the total premiums paid.
    Are cash values guaranteed?
    •   No.  The ILP’s value depends on the performance of the sub-funds.  
    • Cash value will comprise guaranteed benefits and future non-guaranteed bonuses.
    • Bonuses that have been declared by the insurer are guaranteed. 
    Investment risk
    •   You bear the investment risk. 
    • For guaranteed benefits, insurer bears the investment risk.
    • For non-guaranteed benefits, you bear the investment risk.
    Premium Breakdown
    • The amount of premium used for insurance coverage, charges and buying units are separately identified in the Product Summary, Policy Illustration and Policy Contract.
    • The amount of premium used for insurance coverage, charges and buying units are not separately identified in the Product Summary, Policy Illustration and Policy Contract.

    See also: Participating versus non-participating policies

    Last updated on November 05, 2018