Is buying ILAS the same as buying funds?

Investment-linked Assurance Scheme (ILAS) is a long-term insurance policy that offers both life insurance protection and investment options (usually funds). Some people mistakenly think that buying an ILAS product is the same as buying funds. But, they are indeed quite different, especially in the following three areas:

Funds are purely investment products with a flexible investment term, whereas ILAS is a long-term life insurance policy with investment elements that comes with restrictions on both surrender and premium payment period. A policy surrendered early may result in a high surrender charge, which may lead to a significant loss of the premiums paid. Investors should refer to the Product Key Facts Statement (KFS) of the ILAS for the expected minimum holding period of the ILAS policy, e.g. 5 or 10 years. Regarding premium contribution, if the policyholder fails to continue to pay premiums during the premium payment period, the policy may be terminated when the accumulated value of the policy is insufficient to cover the relevant fees and charges. In such cases, the policyholder may lose all the premiums paid and the life insurance protection.

Subscribing to funds typically involve a one-off subscription fee (some funds may also charge a redemption fee) and an ongoing management fee. An ILAS does not have subscription/redemption fees, but it still charges a management fee for the related funds. Besides that, an ILAS also has fees and charges on the policy level, including cost of insurance protection and platform fee. Investors can refer to the Total Policy Charges Illustration in the KFS to learn more about the policy level charges and fees, and to compare different ILAS products in the market. In addition, early surrender or withdrawal charge may also be levied upon early policy surrender or partial withdrawal from the ILAS policy.

When investing in a fund, investors own the fund which, in turn, own the underlying assets of the fund, such as stocks or bonds. Investors can lay claims to the fund units they hold. Those who have an ILAS policy own a life insurance policy instead of its underlying assets. The insurance company, being the ILAS issuer, owns the underlying assets. Meanwhile, the policyowners do not have any right over the underlying funds. Any recourse is against the insurance company.

Therefore, buying an ILAS policy is not equivalent to investing in funds. Investors should consider their needs, financial goals and circumstances carefully, and explore other options that may better suit their needs before making a decision. Please refer to the “Smart tips before purchasing an ILAS product” to learn more.