Unit Link Insurance, Financial Planning, Premium Mechanism Unit-Linked Insurance and Things to Pay Attention to

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Unit-linked insurance is a product that has both protection and investment benefits.  A portion of the premium paid for the unit-linked insurance is used for life insurance coverage, and the remaining portion goes towards investments.  

Premium Mechanism on Unit Link

Part of the premium you pay for Unit-Linked insurance goes towards protection needs, while another part is invested in the capital market. The capital market is where securities such as stocks, mutual funds, bonds etc. can be purchased and sold. Each of these has different levels of risks. As with any investments, there are unpredictable risks that you should be prepared for. Remember, the intention of the investment feature in Unit-Linked products is to support the policy cost that might increase every year.

In Unit-Linked policies, the cost allocation for protection (basic and additional coverage), acquisition costs (company operating costs) and policy issuance costs (including agent commissions) for the first five years is usually relatively high. In continuation to get maximum protection, customers should pay the regular premium agreed stated in the policy and should be aware whether the investment value is sufficient to cover costs that may arise.

Illustration of Fund Allocation in Unit Link Insurance

Each premium will be allocated as agreed with the customer during the buying process. For the first year, usually a smaller portion of the premium is allocated for investment, and the rest allocated to protection and other costs. The investment portion of the premium increases every year.

 

Premium Allocation

Protection/Acquisition

Investment

First year

80-100%

0-20%

Second Year

60%

40%

Third Year

15%

85%

Fourth Year

15%

85%

Fifth Year

15%

85%

Sixth Year

0%

100%

The calculation on the table above is only for illustration purpose, please refer to the policy provision for the fund allocation for your specific unit-linked insurance product.

To receive the protection benefits, you need to pay your premium regularly as stated on your policy, because your investment funds might be reduced to pay for acquisition costs and protection costs that arise if you don’t pay it regularly.

Things to consider when buying unit-link insurance

When you buy Unit-Link insurance products, the following things need to be considered:

1.     Make sure the insurance product and insurance company you choose has been registered and supervised by the Indonesia Financial Services Authority (Otoritas Jasa Keuangan - OJK). You can check the list here: 
https://www.ojk.go.id/id/kanal/iknb/data-dan-statistik/direktori/asuransi/Pages/Direktori-Asuransi-Triwulan-III-2021.aspx

2.     Understand that Unit-Link is an insurance product that is linked to investment, that is not a risk-free product, including the risk of investment value reduction. Learn more about all the cost factors implementation, protection and investment benefits that offers by insurance company in your policy information and document.

3.     If you buy a Unit-Link product through an insurance agent, do not hesitate to ask in detail about the product illustrations made by the agent. Make sure they have a Life Insurance Agent license registered by the Indonesian Life Insurance Association (AAJI). You can check through this link: https://aaji.or.id/Agen  

4.     Inquire about the investment funds status update to your chosen insurance company. For instance, you can find daily updates for Chubb Life Indonesia on this page: https://www.chubb.com/id-en/customer-service/daily-nav-fund-fact-sheet.html

 

Learn more about Chubb Life’s life protection products: https://www.chubb.com/id-en/personal/life-protection.html

This article was written by Aulia Akbar CFP®️, AEPP®️, Lifepal Financial Educator and Lifepal Financial Planner, as part a of partnership with Chubb Life Insurance Indonesia and the insurance marketplace Lifepal.co.id.

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