It has insurance, funds and high interest rates. Is it so good?

It has insurance, funds and high-interest rates. Is it so good?

Interest Rates: Recently, my colleague June’s insurance broker introduced her to buy an “investment-linked life insurance plan” (investment-linked life insurance), saying that it can both invest and have life protection. The monthly payment is as low as 1,000 yuan, and there are dozens of investment options to choose from. Including some investment options that pay dividends regularly, I heard that the annual interest rate can reach 7-8%. In addition, the plan also comes with various rewards. June found it quite attractive, but she was not very familiar with investing, so she wanted to ask me what I thought.

In fact unit-linked life insurance is a life insurance policy with an investment component. It provides policyholders with both life protection and investment options (generally its performance is linked to the performance of related funds). It is a relatively complex insurance product that is both It has various features mentioned by June, but also has many limitations. I suggest June consider the following 5 points before deciding whether she is suitable to buy investment-linked life insurance.

1. For long-term products, early surrender will result in huge losses.

Investment-linked life insurance is a long-term insurance product and is not suitable for people with medium or short-term liquidity needs. Products generally have a lock-in period (which may be as long as more than ten years), and early surrender may require high surrender fees, making the amount you can get back far less than the premium paid. In addition, some investment-linked life insurance policies may deduct policy fees and charges (such as upfront charges) at the beginning of the policy, which in turn reduces the amount available for investment. Furthermore, the fees and charges for such early deductions may be quite high.

2. Premium holidays are not the same as not having to pay premiums

Some people misunderstand that they only need to pay premiums for a certain period of time (for example, 3 years) before they can use the premium holiday clause to stop paying premiums. However, the premium holiday only allows policyholders to temporarily stop paying premiums, and it does not necessarily mean that they will no longer have to pay premiums. During the premium holiday period, relevant fees and charges will continue to be deducted from the investment-linked life insurance account, resulting in a reduction in the account value, and the policy may even be terminated because the account value is insufficient to cover the policy fees and/or charges.

3. Don’t just look at the rewards and fees, pay more attention

Some unit-linked life insurance products provide a variety of rewards, such as first-year bonuses, special bonuses, long-term bonuses, fee rebates, etc., which may seem attractive, but the wool comes from the sheep, and the insurance companies charge policyholders Fees may be greater than these awards. In addition, policyholders should note that in addition to various fees charged by insurance companies for unit-linked life insurance (such as administrative fees, insurance charges, policy fees, etc.), the relevant funds will also charge separate fees (such as management fees).

4. Dividends are paid but principal may be deducted

The investment options of some unit-linked life insurance policies are linked to the dividend-paying share class of the underlying fund, whereby the insurance company can pay dividends paid by the underlying fund to the policyholder. However, those so-called dividend-paying related funds actually do not guarantee certain dividend payments, nor the frequency and amount of dividend payments. Therefore, policyholders should not estimate future dividend payments based on past dividend payment records.

In addition, the amount of dividends paid by the related funds is more likely to come from its own capital, that is, not from its investment income, so the price of the related funds may fall immediately after the dividends are paid, thereby reducing the account value and death benefit amount of unit-linked life insurance ( Note 1). When considering these investment options that advertise dividend payments, policyholders should carefully read the sales documents of unit-linked life insurance and related funds to understand the dividend policy and risks of the relevant funds.

5. Life protection may be low

Some investment-linked life insurance may only provide a very low level of death benefit, such as 105% of the account value. For example, if the insured dies 3 years after paying the premium on the policy, the account value at that time is $100,000. The beneficiary will only receive $105,000 as death benefit. In addition, the account value is generally linked to the investment options selected by the policyholder. If the investment suffers a loss, the death benefit may be significantly lower than the premiums paid (Note 1).

Buying investment-linked life insurance is not the same as buying a fund

Many people think that buying investment-linked life insurance is like buying funds, but in fact there are big differences between the two, including the liquidity and expense issues mentioned above. In addition, the underlying assets of unit-linked life insurance are owned by the insurance company, not the policyholder. The policyholder owns the investment-linked life insurance policy, so the policyholder needs to consider the credit risk of the insurance company.

Those who are interested in purchasing insurance should collect more information, understand the characteristics and risks of related products, and compare whether purchasing life insurance policies and foundations separately is more suitable for their personal circumstances and needs. If it is found that the purchase of investment-linked life insurance is not suitable, consumers have the right to cancel the policy within the 21-day cooling-off period (Note 2). If in doubt, professional advice should be sought.

Note :

1. Some unit-linked life insurance policies offer different death benefit calculation options. For example: If the death benefit amount is at least 100% of the premiums paid, the death benefit will not necessarily be affected by the decline in account value.
2. Please note that insurance companies may deduct “market value adjustment” from the refund of paid premiums, which is the loss caused by the decline in market value when cashing in assets . Consumers may not be able to get back 100% of paid premiums.