Written by Singlife | 23 Feb 2021 |
If you have friends or family who is starting out their investing journey and are feeling overwhelmed, this could be a good alternative to consider. (But if you’re a savvy or a seasoned DIY investor, ILPs may not be up your alley.) Here’s how Singlife’s digital investment-linked policy (ILP) is challenging traditional ILPs. Read on to understand more before you commit to one.
Existing Singlife Account customers may have noticed the launch of Singlife’s latest product – Grow. While there’s currently a waitlist to apply for a Singlife Account, I’ve been receiving several messages from readers on whether Grow is worth looking into, so let’s investigate that today.
(Skip this section if you’re already familiar with traditional ILPs)
For those who are confused by ILPs and what they are, here’s a quick summary: ILPs are policies offered by insurers that have both insurance coverage and investment opportunities. Usually, a portion of the premiums will be used to pay for distribution and other administration costs. The remaining premiums are then allocated for purchasing units in the sub-funds of the ILP that you get to choose (usually at the recommendation of your financial advisor), while some units purchased are then sold to pay for insurance charges and other fees.
As a result, ILPs haven’t exactly had the best rep in Singapore, given that not 100% of your premiums go towards investing, and some are used to cover costs (which might include your agent’s sizeable commissions). Furthermore, the cost of insurance generally rise as you get older, which means it is highly likely that with most ILPs, more units will need to be sold off from your ILPs to cover mortality charges.
I speak from personal experience, as many insurance agents I encountered in Singapore tend to present ILPs as the first few plans they recommend to consumers (which I suspect might be due to the high commission structure). Personally, we financial bloggers generally consider this lousy advice because it mainly benefits the agent’s pocket (from commissions) but not the consumer. Moreover, for customers who are looking to ILPs for comprehensive insurance coverage, ILPs offer poor value for the level of protection you get.
As the saying goes, you’d be much better off with Buy Term Invest the Rest (BTIR) i.e. buying a term life protection plan instead and invest the rest of your premiums elsewhere in a lower-cost investment plan or tool. The problem is that some customers buy term protection…but end up not investing the rest at all.
What more, while returns have never been guaranteed, it hasn’t stopped the agents I’ve encountered from talking up the projected returns of traditional ILPs. What is NOT mentioned are that these returns are prior to deduction of costs! No wonder many consumers are eventually left disappointed, because they were sold sky-high expectations but yet received less-than-expected returns.
There was an additional challenge – while these traditional ILPs did offer you the advantage of being able to invest into certain funds otherwise not accessible to the general public, you needed to select or switch between your choice of funds. Not the best choice since these ILPs were generally sold to consumers who weren’t exactly investment-savvy, so many ended up relying on the advice of their insurance agent. Unfortunately, while many insurance agents are fantastic salespeople and protection experts, not all were necessarily great investors themselves.
I speak from personal experience, because one of the highly-recommended ILP sub-funds that my then-agent suggested to me back then was the Fortress Fund A. Those of you who bought ILPs in the early 2010s may remember this, because it was known as THE go-to ILP sub-fund with the following characteristics:
Some of the ILP sub-funds my agent got me to look at back then.
My portfolio then included Fortress Fund A too, at my agent’s recommendation.
The fees schedule, as provided by my agent who sold me the ILP back then
There’s a really good write-up that Money Maverick did here about the rise and fall of this fund, which was often used then by agents as a defence against critics who slammed them for selling ILPs, because even though the fees for this fund were so high, there was no denying that their client returns were outperforming most DIY investors, and most certainly local index investors.
Until it was no longer.
From 2017 onwards (a few years after I terminated my ILP and investment in this fund), the fund’s performance started to wane, and by 2019, “any Fortress Fund A investor who was previously making a lot more money than the naysayers for years…had completely lost their advantage” (Money Maverick, December 2020)
Therein lies the problem of traditional ILPs:
What about now? Over the years, more investment-focused ILPs have been launched as a response by several insurers to counter the last point (rising cost of insurance). But costs remain high nonetheless and there are still penalty fees if you make a withdrawal or surrender early.
Singlife recently launched Grow as an alternative, digital ILP with the following premise to address the common issues associated with most ILPs today:
So how does it differ from the traditional ILPs we’ve studied earlier? Well, with traditional ILPs, most of your first few years of premiums go towards paying the relevant charges and are not 100% invested. On the other hand, Singlife’s Grow, is a lot more efficient as 100% of your premiums are invested from Day 1.
Is it the lowest-cost approach?
No, but it is among the lowest for ILPs. What’s more, the 3 portfolios offered are actively managed by their investment expert partners from Aberdeen Standard Investments, at a fraction of what active fund management advice would usually cost you.
Costs are only marginally higher vs. if you invest directly by yourself, considering how you’re paying for an actual fund manager to manage your sub-funds.
Plus, regardless of market conditions, if the life assured dies during the period of cover, Singlife will still pay the death benefit. (You can read more about this on their website as well.)
Is it cheaper than DIY or investing through robo-advisors? No, but remember that this isn’t the competition as Singlife Grow is designed for consumers who do not feel that the DIY approach or robo-advisory algorithms work for them. Singlife’s Grow is prioritizing human expertise and active management over algorithms, so if that’s a sentiment that you share, then you might want to take a closer look.
Who is Singlife’s Grow suitable for?
If you’re savvy and know how to DIY, or if you know how to do your own portfolio allocation and switching (e.g. given the options offered by the various robo-advisors), then this is unlikely to be suitable for you.
However, if you’re new and do not have much mind space (nor the time nor effort) to invest, this could be a potential avenue. After all, Grow was launched to provide diversified investment opportunities beyond what is offered in the Singlife Account to consumers.
Minimum investment amount: S$1,000
The minimum you’ll need to invest is a S$1,000 initial single premium.
You can also set up a monthly investment via recurring single premium from as low as S$100 to enjoy the benefit of regular investing.
Otherwise, you may also perform an ad-hoc top-up anytime with a minimum of S$100.
What’s in Singlife’s Grow’s investment portfolio(s)?
The 3 portfolios that have been designed and will be professionally managed by Aberdeen Standard Investments (ASI) are:
For context, Aberdeen Standard Investments is a global asset manager dedicated to creating long-term value for our clients. They manage US$562.9bn of assets on behalf of governments, pension funds, insurers, companies, charities, foundations and individuals across 80 countries (as at 30 June 2020).
In case you’re also wondering about the insurance component, in the event of death or terminal illness, your loved ones will receive the higher of either 101% of your Net Premiums or your Account Value. Here’s an illustration:
Please note that Singlife’s Grow is NOT designed to be used as your base (or main) life insurance protection. If protection is what you need, Singlife offers other life insurance policies with better value on your premiums paid for pure protection (such as their cancer insurance here).
Sample Potential Customer Profile
Based on my discussions with the Singlife team, I concluded that this would be more suitable for young working adults or business owners who are new to investing:
I’ve mentioned it before and I’ll say it again, while I personally chose to cancel my ILP for reasons detailed previously, I do acknowledge that ILPs can still serve a small, niche market for folks who need a bit more hand-holding when it comes to their investments, albeit at a higher cost than if you DIY.
For instance, do you know how to pick the better-performing equity funds within the universe of funds? How often should you rebalance your investment portfolio? If you still struggle with these questions, then perhaps you might not be ready to go fully DIY just yet.
So, don’t reject ILPs just because you read that Budget Babe decided to DIY her own investments. Instead, you should be reading up on the different perspectives, and before you commit to an ILP, make sure you know the pros and cons of each.
Everyone starts off at a different stage of their personal finance journey, and there are many ways to get to the end goal of financial freedom. If DIY investing is not your preference (maybe earning a higher income / growing your business is your strength instead), then Singlife’s Grow could be one alternative for you to “park and forget” while letting others manage your money for you.
And perhaps one day when you’ve armed yourself with enough knowledge and skills to eventually invest directly by yourself into the markets instead, we’ll all celebrate together with you.
Find out more about Singlife’s Grow here.
The views and opinions in this article are those of the author and do not represent or reflect the views of Singlife.
The information is meant for your general knowledge and does not regard any specific investment objectives, financial situations or particular needs any person might have and should not be relied upon as the provision of financial advice.
Singlife’s Grow is an Investment-Linked Policy (ILP) which invest in the respective ILP sub-funds within your chosen portfolio. Investment products are subject to investment risks including the possible loss of the principal amount invested. The portfolio performance is not guaranteed and the value of the units and the income accruing to the units (if any) may fall or rise. Past performance is not necessarily indicative of future performance. A product summary, terms and conditions and fact sheet relating to Singlife’s Grow are available. You should read the product summary, terms and conditions and fact sheet before making a commitment to purchase.
Singlife’s Grow is 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 Singlife or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).
This advertisement has not been reviewed by the Monetary Authority of Singapore.
Information is correct as of 20 February 2021.