Reading an ILP fund fact sheet in Malaysia
An investment-linked policy's fund fact sheet explains where your premium actually goes. Here is how to read the charges, prices and fund choices before you commit.
An investment-linked plan (ILP) splits every premium you pay into two jobs: part of it buys insurance protection, and part of it buys units in one or more funds you choose. The fund fact sheet, and the charges disclosure that comes with the policy, are where you can see exactly how that split works and what it costs you. Too many buyers glance at the projected fund value on an illustration and skip the document that explains how realistic that projection actually is.
The return is not guaranteed
The first thing to accept before reading anything else: the value of your investment-linked units moves with the market value of the fund's underlying investments, up or down. Nothing about the investment portion is guaranteed, unlike a traditional participating policy's declared bonuses or a pure protection plan's fixed sum assured. Any projected fund value you see in a sales illustration is exactly that — a projection under stated assumptions, not a promise.
Bid and offer prices, and the spread between them
Units in an investment-linked fund are bought and sold at two different prices. The offer price is what you pay when the insurer sells you units; the bid price is what you receive when the insurer buys units back from you, for example when you withdraw or when the policy pays a claim. The gap between the two — the bid/offer spread — is commonly around 5%, though it is set by the insurer and disclosed in your fund fact sheet. This spread is separate from any other charges, and it means a fund needs to rise before you are back to breakeven on a fresh purchase.
What the charges are actually paying for
Investment-linked plans are usually more transparent about charges than older traditional products, because the law requires the breakdown to be disclosed. The statement you receive should itemise:
- Insurance charges — the cost of the protection benefits (death, critical illness, and so on) attached to the policy, deducted from your units.
- Administration costs — the insurer's cost of running the policy.
- Fund management fees — charged by the fund manager for running the underlying investment fund, usually expressed as a percentage of fund value per year.
Because insurance charges typically rise as you get older, a growing share of each premium goes to protection cost over time, leaving a smaller share to buy units — which is one reason a level premium ILP's fund value can plateau or shrink in later policy years even in a flat market. The fund fact sheet's charge table is where you can see this pattern rather than discover it from a shrinking balance years later.
Fund switching
Most insurers allow you to switch your holdings between the funds available under the policy, and typically one switch a year is free; further switches within the same year usually attract a processing fee. If you decide the fund mix no longer suits your risk appetite, switching within the policy is the intended mechanism — surrendering the policy to start over elsewhere loses you money on both the surrender penalty and the bid/offer spread of starting fresh, so it is not advisable just to change your investment exposure.
Topping up and adjusting cover
You are generally allowed to make lump-sum top-ups at any time, which are normally used to add to the investment portion without changing the insurance coverage, and separately to request an increase in the death, critical illness, hospitalisation or accident coverage under the policy, subject to underwriting. These are two different levers — investment size and protection size — and the fund fact sheet plus your policy schedule should make clear which one any change you request is affecting.
Questions worth asking before you sign
- What is the current bid/offer spread on this policy, and has it changed recently?
- What is the total expense ratio or fund management fee on each fund on offer, and how does it compare across the fund choices available?
- How does the insurance charge scale with age, and at what age does it start consuming a large share of the premium?
- What happens to the policy if the fund value falls to a level insufficient to cover the insurance charge?
- How many free fund switches am I entitled to each year, and what does an additional switch cost?
There is no fixed holding period for an investment-linked plan, but the high initial charges in the first few years mean holding for a short period is usually a poor outcome — closer to a savings account or unit trust in the flexibility it offers, but with insurance charges layered on top.
Talk to an advisor
A fund fact sheet is dense, and the interaction between insurance charges, fund fees and the bid/offer spread is easy to misjudge from an illustration alone. A licensed advisor can walk through your specific policy's charge structure and fund choices with you. Use the portal's matching to find one, or ask our assistant to explain a fund fact sheet you have in hand.
Sources
This content is educational information from a licensed advisor, not financial advice. Product details vary by insurer — verify specifics with an advisor.
