Investment-link insurance

Investment-link insurance

Lanjutan daripada perbincangan kita di dalam entri yang lalu, iaitu kebaikan dan kekurangan produk 3-dalam-1 sebegini. Ingin saya kongsikan di sini artikel seorang blogger, En. David Hooi dari laman web beliau Millionaire Investor. Artikel beliau menerangkan mengapa produk investment-link ini bukanlah pilihan instrumen pelaburan terbaik bagi menjana pendapatan yang tinggi.


(sumber : ditulis oleh David Hooi, laman web Millionaire Investor)










I’ve read this article from a local newspaper. Think it answers some of our concerns in comparing insurance and unit trust as an investment tool. I’ve translated it into English to share with all of you.With the aid of advanced IT technology and highly competitive business environment, we are receiving tons of information everyday from every corner of the world. That includes advertisement from TV and nice brochures from financial institutions.The advertisement contents are so commercially driven with flourish words, irresistible discounts and free gifts. This made it looks like the biggest pan cake for us to grab! What a fool if we don’t grab it? We are going to regret for life if we let the opportunity slipped away!!

My dear friend, if you have fallen to the trap without understanding the product, you will soon understand that there is no free lunch in life. However, the price to pay for will be too heavy by the time you realize the consequences.

Thus, consumers must take effort to understand and study different investment tools in the market. What are their selling strategies and hidden weaknesses? This is to ensure that you won’t make mistakes and fall into traps.

First of all, let’s start of with the often heard of investment with free insurance plan which is the investment linked insurance.

The investment linked insurance policy has become popular with increasing sales in the recent years. What is so great about this plan as it is still relatively new in the market?

Well, investment linked insurance is an insurance policy cum the function of unit trust investment.

This has often misled investors because the word “INVESTMENT” appeared in the policy. Investors will think that they have bought an investment product. On the other hand, agents often tend to sell the policy as an investment product as this is more acceptable among investors and are easier to sell.

However, is this really suitable as an investment tool? This is something that we have to think about carefully.

We are going to use “regular saving” type plan as our study purpose. This type of investment link plan is among the most popular in the market.

Its operating procedure is simple. An investor has to pay a sum of money as premium regularly (eg: min of RM100 per month). Premium paid will be allocated for unit trust investment according to the yearly allocation ratio.

Different insurance companies will have different allocation ratio. However, most of them are similar in general (pls refer figure 1.). The remaining premium paid will be used to pay for agent commissions and company administration fees.

According to the table shown, unit trust acquainted as of yearly allocation ratio will be deducted further for other payment such as:

  • Insurance premium (premium charged will be based on age group and protection selected)
  • Policy charges
  • Unit trust administration fees

The remaining units will only valid for investment after all the charges. Please note that the insurance protection is NOT FREE at all.

Let’s study 2 different scenarios. Mr A has purchased an investment linked insurance with annual premium of RM5000 for investment. Other the hand, Mr B invested RM5000 in a unit trust annually. Both returned at 12% every year. The illustration below will demonstrate the potential return for the next 10 years.

According to the above analysis, we noticed that the deduction for the investment linked policy is high. This has seriously impacted its potential return as compared to direct investment in unit trust! As shown in the illustration, the return of the pure unit trust plan is almost double as compared to the investment linked insurance.
Point to ponder, investment linked policy is an insurance policy;  it won’t provide high return as what has been believed. If an investor has enough insurance protection, it is not necessary to pay for high cost commission and insurance charges which will limit the future return. It is wiser to invest the money directly into unit trust for better return.




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