Sales illustrations: guaranteed vs non-guaranteed benefits under BNM rules
A life insurance sales illustration shows two kinds of numbers, only one of which the insurer has to pay. Here is how to tell them apart before you sign.
Ask an agent what a whole life plan will pay out in 30 years and you will usually be handed a table with a single, precise-looking figure. What that figure is actually made of, and how much of it the insurer is contractually obliged to pay, is the part worth understanding before you commit to years of premiums.
The illustration is not the contract
A life insurance sales illustration, or a benefit illustration for a family takaful certificate, sets out the numbers an agent uses to explain a product: premiums, projected benefits, and how the figures could grow over time. It is not a legal document. The legal obligations of the policy or certificate are spelt out in the policy or certificate wording itself, so a policyholder should read that document carefully to understand the exact risks covered, and the limits and exclusions that apply, rather than relying on the illustration alone. This distinction matters because the illustration is where the more optimistic-looking numbers tend to live.
Guaranteed benefits
Guaranteed benefits are the amounts the insurer or takaful operator is contractually bound to pay, regardless of how its investments perform. A traditional whole life or endowment plan generally states a guaranteed sum payable on death, total permanent disability, or maturity, and some endowment products also guarantee a fixed cash benefit paid yearly as long as the insured lives to the end of the term. These figures do not move once the policy is issued, and they form the floor of what you can expect the plan to pay.
Non-guaranteed benefits
Non-guaranteed benefits are the parts of the illustration that depend on the insurer's actual performance and are not fixed in the contract. The clearest example is the participating, or "with profits," policy: policyholders share in the profits of the insurance company's participating fund, and those profits are paid out as bonuses or dividends that can rise or fall depending on the fund's investment returns. A non-participating policy, by contrast, does not carry this right at all. Investment-linked plans work differently again: the benefit payable depends on the value of the underlying fund units at the time, which is explicitly not guaranteed, since unit prices rise and fall with the market.
Medical and health cover sits in its own category. Premiums or contributions for these plans are calculated on your age, gender, occupation and health condition, but they are not guaranteed and can be revised over time because of rising medical claims and healthcare costs. A "guaranteed renewal" feature means the insurer guarantees to renew the policy each year subject to its terms; it does not mean the premium stays the same.
Reading an illustration with this in mind
A few habits make the guaranteed and non-guaranteed columns easier to separate on paper:
- Ask which line items are contractual. If a projected total combines a guaranteed sum assured with non-guaranteed bonuses, ask the agent to show the guaranteed figure on its own.
- Look for more than one growth scenario. Illustrations for participating and investment-linked products typically show projections at different assumed rates. Compare the lower scenario, not just the higher one, since the lower scenario is closer to a conservative planning number.
- Check what happens if bonuses are zero. For a participating policy, ask what the maturity or death benefit looks like if no further bonuses are ever declared. That answer is your realistic downside.
- Request the Product Disclosure Sheet alongside the illustration. This shorter document summarises the key features, benefits and exclusions in plain terms and is meant to be read together with, not instead of, the full illustration.
- Do not rely on verbal promises of high returns. Ask instead for the specific document, whether the sales illustration, benefit illustration, or fund performance report, that supports any figure you are quoted.
Bank Negara Malaysia has also required insurers and takaful operators to set up direct purchase channels for simple products such as term life, giving buyers an option to compare a stripped-down illustration against one presented by an agent.
Talk to an advisor
A sales illustration is meant to inform a decision, not to be treated as a guarantee in itself. An advisor can walk through an illustration you have been given and separate what the insurer must pay from what depends on future performance. Find one through our advisor directory, or compare plans side by side at /compare/malaysia/life.
Sources
This content is educational information from a licensed advisor, not financial advice. Product details vary by insurer — verify specifics with an advisor.
