We all dread the idea of dealing with insurance, especially those without a strong financial education. Life insurance c

1. Investment Linked Plans (ILPs) vs. Whole Life Insurance – Key differences We all dread the idea of dealing with insurance, especially those without a strong financial education. Life insurance can be difficult to wrap our heads around. Firstly, being reminded of our mortality is not very pleasant and death is a very morbid subject. Secondly, it can be quite a daunting task to figure out the types, benefits and suitability of life insurance without a good foothold in financial planning. This is particularly so when there are so many life insurance productsthat different companies offer. These include term insurance, whole life insurance investment linked plans (ILPs), just to name a few.

2. Let us begin with the basics and take a closer look on how they differ: What is whole life insurance? The term ‘whole life’ insurance is, as the name suggests, a policy that covers you till you die or are faced with a terminal illness or permanent disability. There are two types of whole life insurances: A participating whole life insurance is one where the premium you pay is invested in low risk instruments like government and corporate bonds, equities and cash. Returns are not guaranteed; however any gain is paid out in the form of declared dividend and bonuses A Non-participating insurance policy has a pre-agreed benefit when you buy the policy. The benefits from your non participating plan will not change throughout your term of coverage

3. Usually ILPs are considered as variations under ‘whole life insurance’. However, if you look in detail, you will see that both are considerably different products. What are investment-link plans? Investment linked policy or ILPs as they are commonly known, are insurance plans that concentrate on higher returns on money. As a result, your premiums are invested into several smaller sub-funds. However, the returns on an ILP depend upon the performance of the funds your money has been invested in.

4. Now let us look at some key differences between the two: Usage of Premiums: In a whole life insurance plan, the two major components are savings and protection. The premiums are used to cover the insurance costs and in case of a participating whole life policy, a small part is invested in safe, low risk avenues like government and corporate bonds, cash and equities. In an investment linked policy, a major part of your premium is invested in various smaller funds. The major component is growth of the money. A smaller part of the premium you pay is used to cover the insurance. Guarantees of returns: A participating whole life insurance plan offers a guaranteed payout. An ILP on the other hand doesn’t offer a guaranty on returns in any form. This is because your returns depends on how your investments perform in the market. While you may get higher return, you may lose money as well.

5. Risk Factor: A whole life insurance plan has low risks. Be it a participating one or a non-participating plan, the risk of losing your money is minimal. This is because the investments, if any, are of low amounts and in safe funds like government bonds and equities. An ILP, on the other hand, runs a higher risk of losing money. The investments done are into funds of your choosing. There is always a risk of losing money if your funds do not perform well in the market. Projected Rates of Returns: PRRs are a characteristic of every insurance product that involves investments. This means both ILPS and participating whole life insurance show PRRs. A non-participating whole life policy does not showcase any PRR. A participating plan does have PRRs but these are extremely low. ILP show higher projected rates of returns, actual returns may be lower than projected or may provide potentially higher returns

6. As you can see, ILPs and whole life policies have some major differences. However both of them are life insurances. Find out if you are sufficiently covered and read about life insurance online to understand how to make it a part of your long term financial planning.

7. You can also find more interesting details on the site below: Website:https://www.prudential.com.sg/product/investment Facebook:https://www.facebook.com/PrudentialSingapore/ Instagram:https://www.instagram.com/prudentialsingapore/?hl=en LinkedIn: https://www.linkedin.com/company/prudential-assurance-company-singapore/ You Tube:https://www.youtube.com/channel/UCWs_Qg2Rahok4kORir5w4eQ