Briefly, an Investment-link policy offers a combination of permanent and term life insurance protection and the growth potential of variable fund investments.
Its unique feature is that the policy’s cash value is invested in an account made up of one or more funds of equities, money markets, or bonds. The policy owner decides where to invest the money and, periodically, within contract limits each year, may transfer funds from one fund to another.
The policy guarantees a minimum death benefit, but the actual death paid may be much higher if the investments perform well. In addition, the cash value also fluctuates with the investment performance and has the potential of greatly surpassing the return on traditional life insurance policies, as well as those of universal life.
There is also risk with this type of contract. The cash values are not guaranteed. If the investments to which they are linked perform poorly, the variable life cash values may grow at a lower rate than in traditional products or not at all.
Investments-link products policy owners might pay a level premium for the duration of the policy. There are flexible premium payments with this product. Each premium is reduced by an amount needed to maintain the minimum guaranteed death benefit.
The product is entitled to tax-free death benefits. However, an investment-link product policy is both life insurance and an equity product. For this reason, field underwriters who sell it must be life licensed.
Is an Investment-linked policy suitable for you?
Please take note of the following points:
- You should have a basic understanding of investments and believe they are capable of making good investments decisions.
- You must have relatively high risk tolerance. If the sometimes uncertain, non-guaranteed nature of this product makes you uncomfortable, this is not the product for you to buy.
Of course, after what have been said and done, it is best to get appropriate advice from qualified financial planner who has the capability to address your financial concern, needs and goals.