10 questions to ask before committing to an ILAS
Investment-linked assurance schemes (ILAS) are usually sold by or distributed via bank staff, insurance brokers and agents. When intermediaries approach you with what they call an investment plan, saving plan, investment-linked plan or fund plan which all come with a locked-in period, they may be recommending an ILAS to you. Before making any commitment, ask the 10 questions below to help assess if ILAS is suitable for you.
1. Do I have a dual purpose of investment and estate planning?
An ILAS is an investment-cum-insurance policy issued by an insurance company. It may suit you only if you have both investment and estate planning objectives as it is a packaged product with investment and insurance elements like a death benefit payable to third-party beneficiaries.
2. What is my financial goal?
You should set your financial goals based on your needs, for example, investment, insurance or anything else, then find out if a product like ILAS can help you achieve your goals.
3. Do I know my risk profile?
Policy value or death benefit of an ILAS is subject to investment risks and market fluctuations because the premium paid will be invested into funds corresponding to the investment options selected by the policyholders. The policy value or death benefit may be significantly less than the premiums paid or not sufficient to meet your life insurance needs. You should decide if you are willing to have your policy value or death benefit subject to investment risks, and assess the level of risk you can tolerate.
4. Have I examined my liquidity needs?
ILAS products are generally designed for financial consumers with a long-term investment horizon. Any short- and medium-term liquidity needs may jeopardise your long-term commitment to an ILAS.
5. Are there any other alternatives that can better meet my financial goal?
Apart from understanding the pros and cons and the overall level of fees and charges of an ILAS, you should compare ILAS which is an investment-cum-insurance policy with direct investment in the underlying assets of the product, for example through mutual funds and unit trusts, and buying a life insurance policy separately. Learn more about how to compare ILAS and funds.
6. Do I know the remuneration that my intermediary has received upon my purchase?
The intermediary may charge you nothing directly but they will receive remuneration borne out of the charges you pay. At the point-of-sale, the intermediary will disclose in the Important Facts Statement that the average remuneration payable to the intermediary per each $100 of the premium that you pay. This covers all payments to the intermediary directly attributable to the sale of the policy (including upfront and future commissions, bonuses and other incentives). The remuneration is an average figure calculated on the assumption that you will pay all the premiums throughout the entire premium payment period. The amount of remuneration actually receivable by your intermediary may vary from year to year and may be higher in the early policy years. You can ask your intermediary for further information if you have any questions. Intermediary remuneration may not be the only or the most critical factor for your investment decision but it is still worth your consideration.
7. Is the ILAS’s fee structure acceptable to me, especially if I may have to surrender the policy early?
ILAS policies involve fees and charges at policy level which are payable to insurance companies and underlying/reference funds level which are paid to fund management companies. Some policies impose surrender/withdrawal charges for early policy termination/surrender, partial withdrawal and suspension/reduction in premium. This may result in significant or total loss in principal and other policy benefits. If surrender charges apply to the ILAS you are considering, you should check the illustration document carefully for the projected surrender value over the policy term you have.
8. What are the fees and charges I may need to pay to the insurance company?
Due to various fees and charges, including upfront charges if any, levied by the insurance company, the overall return on an ILAS may be lower than that of direct investments in the underlying/reference funds. Such fees and charges as a percentage of the total premium paid is disclosed in the ILAS product Key Facts Statement (KFS). It is calculated based on certain assumptions. If the assumptions differ from your personal circumstances, you should ask your intermediary to further explain. If you do not understand or are not satisfied with the information provided, you may consider if you should buy the ILAS product or buy it through the intermediary.
9. Does the policy term align with my investment horizon?
ILAS is a long-term investment. Before signing up an ILAS, check whether you are able or intend to make contributions for the whole of your chosen premium term particularly if the ILAS has regular premium payment obligations.
10. Can I, for any reason, change my mind and have my money back after my purchase of ILAS?
Yes, you have the right to cancel the ILAS policy and get back your original investments (subject to market value adjustment) within the cooling-off period, which is 21 days after the delivery of the policy or issue of a notice to you, whichever is the earlier.
Trading or buying financial products involves a fee. In the case of ILAS, fees and charges payable to the insurance company may substantially reduce the amount of premium available for investment. Therefore it is crucial for you to understand the charges and fees related to the product.
With the enhanced disclosure requirements for the ILAS’s schemes in 2013, the total fees and charges to be paid to the insurance company as a percentage of the total premium is prominently disclosed in the ILAS’s product KFS to help investors make informed decisions.
Last update: 27 March 2015