Before you decide if investment-linked policies (ILPs) might be for you, it’s good to know a little bit more on the pros and cons of such a policy.Perks Higher Potential Returns ILPs buy unit trusts which are directly dealt with the market. Depending on the performance of the fund, there is potential to make higher returns, greater than other life insurance policies. Generating potential substantial returns is the unique selling point of ILPs. It can generate potential passive income for future investment goals.Premium Breaks With ILPs, customers are able to temporarily stop premium payments in the case of diverting funds toward more pressing financial commitments. This doesn’t terminate the ILP unlike other insurance policies if there is a payment lapse.Flexibility to Adjust Coverage With ILPs, there is flexibility to adjust insurance coverage which is funded by customers’ units. Coverage increases by selling more units to buy more insurance. However, this decreases investment but raises coverage without paying higher premiums. Customers can also lower insurance coverage and shift more of premiums toward wealth accumulation.Fund Switching Option An ILP allows customers to make changes to their portfolio of ILP sub-funds in line with their financial goals. Customers today desire both flexibility and control. Bear in mind that some ILPs can charge a fee when a customer applies to switch ILP sub-funds, while others offer a limited number of switching for free.Additionally, with ILPs, people have more control over how their money is being invested. If a particular sub-fund is not performing well, they can switch to another to optimise their returns. At the end of term insurance, they get back a lump-sum amount which can act as means of building a retirement fund. Customers are motivated to pay the premium, thus creating a disciplined payment method. Money is invested through insurance companies which gives customers assurance that their money is invested in a safe and secure manner.RisksReturns are not Guaranteed Since the ILP value depends on performance of sub-funds, the value of customers’ investments are bound to fluctuate according to market conditions. However, since ILP is a long-term investment plan, short-term fluctuations in the market will not adversely affect the returns.ILPs are also more complex, confusing, and may lack transparency. But insurers can offer more transparency to their customers to gain their trust and assure them that their money is being invested wisely.How Would Insurers Benefit by Providing ILPs? ILPs have quickly become the centrepiece of an insurer’s suite of products. It provides an investment product with insurance components, offering the “best of both worlds”. ILPs may help to grow wealth faster than typical savings accounts and fixed deposits. It is different from term life insurance, which only covers customers for death and disability and offers no other pay-out, with an exception of some policies that come with riders.

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