Before year 2000, there are only traditional life insurance policy available to the market. Since then, some insurance companies in Malaysia had come up with many investment-linked insurance products. Let’s look at some major differences between the 2 type of policies: Investment-linked vs Traditional policy.
In the illustration below, I had used the Great Eastern 2 best-selling products: Greatlife Portfolio Insurance (Investment-linked) and Supreme Livin‘ Care (Traditional policy).
The 3 major differences:
1. Protection or Sum Assured
For traditional policy, the protection is guaranteed to increase to double of the initial protection over 20 years. In this case, from 50K to 100K. If the policy owner keeps paying the premium, the protection will just keep increasing.
For investment-linked, the life assured can choose from a range of protection. In this case, from 24k to 200k. The protection will remain fixed unless you request for changes.
2. Insurance Charges
Traditional policy charge the premium on an average. It is known as level premium. Meanwhile, the insurance charges of investment-linked policy will increase over time, according to your age. This make the it cheap when young, but more expensive when you are getting older. This is known as natural premium.
3. Cash Value or Return
Traditional policy: The bonus is declared in yearly basis. Once it is declared, it is said to be vested. It means when insurance company declared a certain amount of bonus to you, it is kept with your policy and won’t be taken away disregarding the market performance.
Investment-linked: Policy owner invest the remaining premium in the fund they choose. It can be a low risk fund such as fixed income fund, or other equity funds which are higher risk comparatively. Even though policy owner may get higher return or cash value when the market is bullish, but all the return might be wiped away when market turn bearish.
So which policy suits you? I bought both. I know that traditional policy is the one I will keep for whole life. However, I might terminate my investment-linked policy when I retire. If not, I will at least reduce the protection to save on the ridiculous insurance charges at older age.
- Traditional Insurance Vs. Investment-Linked Plan Infographic
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