Investment-linked insurance Plan (ILP) is a unique type of insurance product that combines life insurance protection with investment in funds of your choice. The premium you pay for an investment-linked insurance plan is divided into units of equal value, and you have the flexibility to choose various aspects of your policy to suit your financial goals and risk tolerance.
Key Features of Investment-Linked Insurance
- Flexibility in Choices:
- Protection and Investment Levels: You can determine your level of life insurance protection and the amount to be invested.
- Wide Variety of Funds: You can choose from a broad range of investment funds.
- Payment Options: Opt for either a single one-off premium or regular premium payments.
- Risk Levels: Select the level of risk you are comfortable with, aligning your investment choices with your risk appetite.
- Premium Allocation:
- Allocated Premium: Your premium is allocated to your investment-linked policy.
- Insurance Charges: A portion is used to cover insurance charges for your life protection.
- Cash Value Accumulation: The remainder accumulates as cash value within the policy.
- Other Charges: These include policy fees, fund management charges, etc.
Understanding Cash Value Accumulation
Cash value is essentially the value of your investment fund within the policy. Regular premium plans accumulate cash value over time, and the higher this cash value, the longer your investment-linked insurance can sustain itself.
Investment-Linked Takaful
Investment-linked Takaful operates similarly to investment-linked insurance but adheres to Shariah principles. Participants contribute to a Takaful fund to mutually help each other in cases of death, disability, etc. Any surplus in the fund is shared among the participants. The investment component involves Shariah-approved funds, offering the same flexibility in terms of protection, investment, and risk levels.
The Risk Factor
- Fund Performance: The value of your investment fund fluctuates according to the fund’s performance in the market.
- Fund Switching: You have the option to switch your units from one fund to another to better suit your interests.
- Returns and Risks: Investment in growth or equity-related funds can offer higher returns but generally comes with a higher degree of risk. Your returns are not guaranteed, and you may even get negative returns.
Fees to Take Note Of
Be mindful of various fees associated with investment-linked insurance:
- Initial Charge
- Fund Management Fees
- Policy Fees
Factors That Could Reduce Your Fund Value
Several factors can cause your investment-linked policy to be unsustainable:
- Not paying premiums/contributions when due
- Poor investment returns
- Increasing protection cover without increasing premiums/contributions
- Choosing not to increase premiums/contributions when the insurer increases charges
- Making partial withdrawals
To maintain your policy, consider increasing your premiums and/or lowering your coverage.
Reach out to your trusted Allianz Life Insurance Agent today. We’re here to listen, support, and clear any doubts you have about your insurance, because your peace of mind matters to us.
How BNM’s Regulations Benefit You
Bank Negara Malaysia (BNM) has put regulations in place to protect policyholders:
- You will receive an annual statement detailing your expected duration of cover.
- Pre-lapse notices will be issued within the next 11 months for policies/certificates sold before 1 July 2019.
- For policies sold after 1 July, premiums/contributions are set to be sustainable for the entire contract term.
Is Investment-Linked Insurance for You?
Consider the following before opting for an investment-linked insurance plan:
- Have you assessed the level of risk you are prepared to take?
- Are you capable of deciding which funds to invest in?
- Are you aware of the additional fees and charges you’ll have to pay?
Investment-linked insurance offers a flexible and potentially rewarding option for those looking to combine life insurance protection with investment opportunities. By carefully considering your financial goals, risk tolerance, and the associated costs, you can make an informed decision that aligns with your long-term financial strategy.
