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Planning your finances for future generations

Many parents envision a fulfilling life for their children. In order to provide the best they can, they seek to transfer their wealth down to their children, so that they will have sufficient funds to live comfortably.

Breadwinners also need to plan for their families in the event that something unfortunate happens to them. If they do not have any financial plans in place to ensure that their loved ones are protected against unforeseen circumstances, the sudden loss of the breadwinner may impact the family’s financial well-being, resulting in them having little funds to pay for items such as their children’s education, or to maintain the lifestyle that they are used to.

There are many options available for those who want to secure the future of their loved ones. While whole life insurance policies are a common option, let’s also take a look at a product with more flexible options and the opportunity to reap positive returns in a well-performing market.

An investment-linked policy comprises an investment component and an insurance component, both of which have varying proportions depending on how the policy is structured. ILPs typically offer insurance benefits, such as the death benefit, which pays out a lump sum upon the passing of the life assured.

The common factor among all ILPs is that, as the policyholder, you get to choose which ILP sub-funds to invest in, subject to your risk profile, as part of the ILP’s investment component. These ILP sub-funds cover a range of asset classes, from fixed income, money market funds to equity.

Returns, however, are not guaranteed. Some ILPs offer partial withdrawals and bonuses, the latter of which boost overall returns in the long run. In summary, an ILP takes on more investment risks than a standalone insurance product.

But when it comes to planning your family’s finances, the ILP with a life replacement option (LRO) can ensure a seamless transfer of your policy to your loved ones.

The goal of an LRO is to extend the policy beyond the life of the original life assured. It ensures that the policy provides for your loved ones, by enabling the original policyholder to transfer the policy to somebody else.

If the LRO is exercised, the policy does not cease upon the original life assured’s death. Instead of claiming a death benefit, which is a one-time lump sum payout, your family can continue to tap on the policy’s returns.

Sometimes, parents need funds to pay for certain milestone events, such as their child's first semester at university. They can choose to make partial withdrawals on their policy in order to do so.