8 Important Considerations in Selecting Investment-Linked Insurance

Investment-linked insurance (ILIs) has grown in popularity among savvy investors looking to merge financial protection with wealth-building opportunities. By combining insurance with an investment plan, these ILIs offer a unique value proposition—protection for loved ones coupled with potential long-term financial growth. For individuals seeking a more dynamic approach to financial planning, ILIs can provide an attractive pathway to achieving their financial goals.

Are you intrigued by the possibilities of investment-linked insurance? Keep reading to learn about the factors in selecting investment-linked insurance.

What is Investment-Linked Insurance?

Investment-linked insurance is a hybrid financial product that blends life insurance coverage with an investment component. Unlike traditional types of insurance plans that provide a fixed payout, ILIs allocate a portion of your premium toward investment funds, such as equities, bonds, or mutual funds, based on your preferences.

This dual nature is why investment-linked insurance is a must in the finance landscape, offering policyholders both protection and the potential to grow their wealth over time. For individuals who want to build wealth while securing their family’s future, ILIs can be a strategic choice. The flexibility to adjust your investments as your financial goals evolve makes ILIs an adaptable and attractive option for long-term financial planning.

Factors to Consider When Selecting Investment-Linked Insurance

Choosing the right ILI requires a thorough evaluation of several factors. Each aspect plays a pivotal role in determining how well the product aligns with your financial objectives and risk tolerance. Here are the key considerations to guide you on how to select investment-linked insurance:

1. Requires Long-Term Planning

Investment-linked insurance is not a short-term commitment. These policies are designed for individuals with a long-term financial horizon, typically spanning 10 to 20 years or more. As the investment component relies on market performance, it may take years to realize significant growth.

As such, investors must first assess your ability to maintain regular premium payments over an extended period. Failing to commit long-term could result in suboptimal returns or even a lapse in coverage, which could jeopardize both your financial goals and your family’s protection.

Carefully evaluate your income stability and future financial plans before committing to investment insurance.

2. Payout Structure

The payout structure of an ILI is a critical consideration. Most plans provide a death benefit or the value of the investment fund, whichever is higher. However, the balance between insurance coverage and investment returns can vary significantly across plans.

Some ILIs prioritize higher death benefits, while others emphasize investment growth. Understanding your financial priorities—whether it’s securing your family’s financial future or maximizing investment returns—will help you choose a plan with an optimal payout structure that meets your needs.

3. Customized Asset Allocation

One of the most appealing features of ILIs is the ability to customize your investment portfolio. Depending on your risk appetite and financial goals, you can allocate your premiums to a mix of equity, bond, and balanced funds.

Many insurance companies also offer tools to help you adjust your asset allocation as your risk tolerance evolves. Assess the range of funds available and ensure they align with your investment strategy before selecting a plan.

The availability of tools to align your investment based on your goals and risk appetite is an important factor in choosing investment-linked insurance.

4. Investment Flexibility

Flexibility is a hallmark of ILIs. These policies allow you to switch between funds to respond to changing market conditions or personal financial goals. For instance, you might want to shift to more conservative investments as you approach retirement.

Evaluate the fund-switching policies of the ILI you’re considering. Some plans offer unlimited switches at no extra cost, while others may impose restrictions or fees. For example, at InLife, you’re free to switch funds within the policy depending on market conditions. Once your policy has matured, you may withdraw your investment and use it as you wish.

This flexibility can significantly influence your ability to optimize returns and adapt to financial changes over time.

5. Liquidity Constraints

Liquidity is an important consideration for any investment product, and ILIs are no exception. Most ILIs have a lock-in period, typically five to ten years, during which partial withdrawals may be restricted or penalized. While some plans allow partial withdrawals after the lock-in period, frequent withdrawals can diminish the investment’s growth potential.

If you anticipate needing access to your funds in the short term, an investment-linked insurance may not be the right fit. Understanding the liquidity constraints and planning accordingly can help you avoid financial strain and maximize your investment’s growth.

6. Additional Costs

While ILIs offer significant benefits, they often come with additional costs that can impact your overall returns. Common fees include administrative charges, fund management fees, and policy surrender charges. Over time, these costs can erode the value of your investment.

Before committing to a plan, thoroughly review the fee structure and assess its impact on your long-term returns. Comparing costs across different ILIs can help you identify a policy that offers value for money without excessive charges.

7. Returns Based on Market Performance

One important consideration in selecting investment-linked insurance is your risk tolerance. ILIs do not offer guaranteed returns. The performance of your investment depends on market conditions, which can be unpredictable. While this creates opportunities for higher returns, which is how investment insurance provides financial security, it also exposes your investment to risks.

Investors should carefully evaluate their risk tolerance and financial goals before choosing an ILI. Consider consulting a financial advisor to determine whether an ILI aligns with your overall investment strategy. By acknowledging the inherent risks, you can make informed decisions and set realistic expectations for your returns.

8. Professional Management

Another important factor to consider is who is managing your investments. Apart from choosing a legitimate insurance company with an excellent track record, make sure that they also work with credible fund managers.

Make sure that their fund managers are well-trained and have the requisite experience in managing funds. This way you can trust that your fund manager can analyze market conditions and offer guidance that will steer you in the right direction.

Ready to Invest in Financial Security?

Investment-linked insurance products can be a powerful tool for combining financial protection with wealth-building opportunities. However, to ensure success, it’s important to consider the factors in choosing an investment-linked insurance that we have discussed.

By thoroughly evaluating these aspects and aligning them with your financial goals and risk tolerance, you can make an informed decision that supports both your insurance coverage needs and investment aspirations. With the right insurance in the Philippines, you can pave the way for a secure and prosperous future for yourself and your loved ones.

Get in touch with our financial advisors to learn more about InLife’s investment-linked insurance products.