Hong Kong people are very busy, with their work, family, friends, entertainment, and they are always occupied by all sorts of activities. And thus, multi-purpose products, eg 3 in 1 coffee and 2 in 1 shampoo may be welcomed by the busy Hong Kong people. As for personal finance, you may have heard from insurance agents or financial planning managers of the banks that there are some products that offer both insurance protection and investment opportunities. While you may think that it is convenient to handle investment and insurance in one go, there are also pros and cons for such kind of hybrid product.
Generally speaking, investment-linked assurance scheme (ILAS) which combine both insurance and investment could be a choice if you have a long-term investment horizon and a dual objective of investment and estate planning. Before making a purchase decision, you should think carefully your own circumstances and the reason why you want to get an ILAS policy. Consider if there are other options (eg buying a life insurance policy and invest in funds separately) that may better achieve the same objective.
What is ILAS
An ILAS is a life insurance policy with investment elements that provides both insurance protection and investment options, usually funds. Its key features and risks include:
- Investment risk: ILAS's policy value is subject to investment risks and market fluctuations. The investment return can fluctuate significantly or even become losses.
- Long lock up period: ILAS is a long term product (the policy period may be up to 20 or 30 years) with long lock up period that is not suitable for consumers with short- or medium- term liquidity needs. It could incur high handling charges if the policy is surrendered early. This could result in significant loss of the premiums paid.
- Complex fee structure: There are different layers of fees, some of which are related to the insurance policy and others are related to the investment options. Understand more about the fee structure because it may reduce the amount available for investment.
- Insurance protection: Different ILAS policies provide different level of insurance protection. Some ILAS policies may only provide minimal death benefit (eg 105% of account value which may be linked to the investment options the policyholders selected). The death benefit payable may be significantly less than the premiums paid and may not be sufficient for policyholders' individual needs.
- Ownership: When you purchase an ILAS policy, you own the policy but not the underlying funds; the underlying funds are owned by the insurance company instead.
Read the following sections to learn more about ILAS. Do not purchase or invest in any products that you do not understand.