Why 55-year-old chose to include investment-linked plans in her retirement portfolio
Source: The Straits Times © SPH Media Limited. Permission required for reproduction.
For the past decade, Ms Nancy Lim, 55, has been carefully strategising for retirement.
With the aim of stopping full-time work at the age of 60, she has been working closely with her financial advisor representative and investing her savings to create passive income streams for her retirement.
The human resources director, who is single, understands that disbursements from her CPF Life will only begin when she’s 65.
“From now till I’m 65, which means the next 10 years, I have this ‘marathon’ to run where I steadily build up passive income streams from my insurance savings plans and investment-linked plans,” she says.
“My overarching objective in retirement planning is to have a new income stream starting at different points in my life – ideally every year, if not a time interval of about two to three years apart,” adds Ms Lim.
Income stream from first policy year
Ms Lim’s latest addition to her portfolio is an investment-linked plan (ILP) from Income Insurance which allows her to enjoy a potential income stream in the form of dividends from dividend-paying funds from the first policy year.
Called Invest Flex Vantage, the new policy complements her other plans with Income Insurance that may start providing payouts when she is older. These include Invest Flex Vantage, an ILP that is geared towards generating potentially higher investment returns, that could provide a stream of income ten years from now.
“One of the reasons why I chose Invest Flex Vantage is that it offers me the flexibility to take a break from paying premiums or take a premium holiday as and when I need to from the fifth year onwards,” she says.
Ms Lim’s discipline stems from personal experience. Having seen both her parents outlive their savings while battling dementia in old age, she wants to make sure she remains financially secure throughout her retirement years.
She has plans to travel the world and hopes to be able to continue pursuing her hobbies, which include playing the cajon, a drum-like instrument, well into her later years.
Ms Lim says she chose to purchase her plans from Income Insurance as the company offers a wide range of insurance products, including ILPs. Her personal financial advisor representative from Income Insurance, Mr Elvin Phua – who has been with her for more than 10 years – has also been very helpful throughout her financial planning journey.
How Invest Flex Vantage works
Invest Flex Vantage allows policyholders to invest in a range of funds that potentially pay dividends, depending on the asset class or fund selection. This is a useful feature for those preparing for retirement like Ms Lim.
Partial withdrawal of money that has been invested will not result in charges when a specified life event occurs, even if this takes place during the Minimum Investment Period (MIP). MIP refers to the period the policyholder has chosen to pay regular premiums. For withdrawals after MIP, there will be no charge. In addition, policyholders have the flexibility to take a premium holiday at no charge for up to 120 months from the fifth policy anniversary subject to certain conditions.
In Ms Lim’s case, she has chosen an MIP of five years. She exercised the future premium option to pay 24 months premium in advance so she does not need to worry about paying the premium for the next two years. After the fifth policy year, she would have the option of a premium holiday
She says: “I always plan for the worst-case scenario. If for whatever reason I need to suddenly stop working and take a premium holiday, I will not be subjected to this unnecessary pressure of having to continue paying my premium.”
Invest Flex Vantage also caters to those who want ILPs which generate returns that they can withdraw after a short period, based on certain conditions, such as a minimum value of units worth S$500 per withdrawal and maintain a minimum value of units worth $1,000 after each withdrawal.
Says Mr Dhiren Amin, chief customer officer at Income Insurance: “When gathering feedback from customers about investment-linked plans, we found that they want to be able to encash their policy at a younger age, and not have to wait too long before they receive payouts.”
Key benefits of Invest Flex Vantage
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Provides investment opportunities as well as coverage against death and terminal illness
● Option to receive a potential income stream from the first policy year with dividend-paying funds1
● Charge-free partial withdrawals when a specified life event occurs during the minimum investment period
● From the fifth policy anniversary, customers have the flexibility to take a premium holiday at no charge, for up to 120 months
● Loyalty bonuses that accrue over time. The loyalty bonus will be provided starting from the 10th policy anniversary or the end of the minimum investment period, whichever is later
● No need to undergo a medical check-up
Benefits of ILPs
In Singapore, most ILPs involve regular premium payments, often on a monthly or annual basis. Most of the premiums are put into funds that can potentially generate higher returns compared to regular insurance plans that offer a guaranteed minimum return.
A part of the premiums goes towards insurance coverage, and ILPS such as Invest Flex Vantage offers death or terminal illness benefits.
As hybrid products that combine long-term wealth accumulation and protection, ILPs are especially helpful to people who want to build their nest eggs but don’t have the time or inclination to manage multiple financial assets.
Policyholders should note that while Income Insurance selects fund managers based on their strategies and past performances, the returns from ILPs are not guaranteed.
Mr Amin says: “Financial advisor representatives are crucial to selling and servicing ILPs as many consumers feel they do not have the expertise to assess their own risk appetite and pick funds. This is why we invest so much in selecting and training the advisors.”
Having one’s savings managed by experts is another attraction.
“While I do read up on stock and shares related news, I am not professionally trained to read the stock market. As such, I’ll rather pay a management fee to the professional fund managers and let them do the investing for me,” adds Ms Lim.
The high cost of investment-linked plans and other misconceptions
One common misconception regarding investment-linked plans (ILPs) is that there are a lot of hidden charges, resulting in lower returns.
This may have stemmed from older ILPs, which were predominantly protection-focused and included higher charges for insurance coverage. It enables policyholders to enjoy protection in the form of life insurance while mutual fund investors do not.
However, because these fees tend to increase with age, they could offset returns and hinder investment growth.
ILPs have evolved over the years and newer ILPs, such as Income’s Invest Flex and Invest Flex Vantage, are largely investment-focused, meaning a greater proportion of the funds are invested to generate returns for policyholders.
As for charges, these are clearly spelt out in the policy documents as required by law. To be transparent to consumers, insurers like Income Insurance offer documentation, including a product summary, policy conditions and policy illustration – so they can fully understand their policy and its benefits.
Another misconception is that ILPs are expensive and inflexible. In reality, one can invest from as little as $200 a month with Invest Flex and Invest Flex Vantage. Both policies offer premium holidays and withdrawals with no financial penalties if certain conditions are met.
A wide range of ILPs is available, and policyholders should seek guidance from their financial adviser representatives when selecting plans that best suit their individual needs and financial goals. It is also important to read and understand a policy before purchasing it.
Learn more about how you can tap Income’s investment linked-plans to prepare for retirement.
1 Dividend refers to the distribution of certain funds that have a distribution option that Income Insurance may declare. Distributions are not guaranteed. If the distribution amount for a fund meets the minimum amount Income Insurance tells the policyholder, the policyholder can choose to receive all future distributions from that fund as payouts.
Distributions may be made out of the income and/or capital of the sub-fund. Any payout of distributions from the capital of the sub-fund may result in an immediate reduction of the net asset value per share/unit. Please refer to the policy conditions for further details on the declaration of distributions, reinvesting distributions, and the applicable terms and conditions.
This article is meant purely for informational purposes and does not constitute an offer, recommendation, solicitation or advise to buy or sell any product(s). It should not be relied upon as financial advice. The precise terms, conditions and exclusions of any Income Insurance products mentioned are specified in their respective policy contracts. Please seek independent financial advice before making any decision.
These policies are protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact Income Insurance or visit the GIA/LIA or SDIC websites (www.gia.org.sg or www.lia.org.sg or www.sdic.org.sg).
This advertisement has not been reviewed by the Monetary Authority of Singapore.
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