The pandemic served as a grim reminder that we should always expect the unexpected and be prepared for anything.

With the rising cost of living, a proper insurance plan can be a blessing when you are at your most vulnerable, but who really has the time to go through all the different features before deciding?

At some point in your decision-making process, you might find yourself deciding between Traditional Life Insurance or an Investment-Linked Policy (ILP). To help free you from analysis paralysis, we’ve summarised the features and basic offerings of each type. By the end of this article, you’ll be better equipped to decide on what’s best for you.

Traditional Life insurance

Most companies provide basic insurance coverage to their employees throughout their active employment period, but this coverage only protects against Death or Total Permanent Disability (TPD). Since these are all expenses that need to be borne by the company, the coverage amount is usually on the lower end.

While it’s great that you have this coverage, is it sufficient to ensure your loved ones are taken care of? Will the TPD coverage ensure you quality of life? If your answer is no, you can consider traditional life insurance to make up any shortfall in coverage amount.

From a premium perspective, it’s quite straightforward. Premiums remain the same throughout the policy term. At the end of the policy term, you receive a guaranteed amount. As your premiums are purely for your coverage and are not put into investment-linked funds, traditional life insurance has no investment risk.

This simple structure makes it attractive for those who wish to have a decent payout for their dependents should anything happen, but its other features can also make it a useful part of a solid retirement plan. Some traditional life insurance policies feature an Annual Guaranteed Cash Payment (GCP), which provides the policy owner with a regular stream of income during their retirement years. This income can supplement your EPF funds and other savings, so you can truly enjoy your golden years.

Traditional life insurance also comes with an optional facility called Automatic Premium Loan (APL). APLs are designed to keep life insurance coverage in-force when the policy owner is unable pay the required premiums on time, so coverage is continued. APL authorises the insurer to deduct the amount of an outstanding premium from the value of the policy when the premium is due.

An example of traditional life insurance is RHB Treasure 100 Premier, which provides you with coverage and a GCP until the age of 100 years.

Investment-Linked Policy (ILP)

An ILP varies quite significantly from traditional life insurance in its features and the way it works. One significant difference is that a portion of your premiums are put into an investment-linked fund. Simply put, it takes a double approach of insuring and investing.

It’s also more flexible compared with traditional life insurance. On top of providing a payout to your dependents when the unexpected happens, ILPs offer a benefit known as cash value (investment account value), which allows you to withdraw a portion of the accumulated investment amount for financial emergencies during your coverage period, like a rainy-day fund.

With ILPs, because there is an element of investment, there are potential returns on the funds selected based on your risk appetite. You have the flexibility to choose how much you wish to invest, when you wish to invest it, and which funds you want to invest in. However, like any form of investment, the rate of return depends on the market, and is therefore not guaranteed.

ILPs also come with a unique feature known as a Premium Holiday. If you’re facing financial difficulties, you can temporarily stop your premium payments, without compromising your coverage. Your ILP will be kept in force by selling your existing fund units (provided you have sufficient units) to cover your premium payments.

An example of an ILP with these features is RHB Essential Protect Premier, which provides a high level of coverage, while providing you with potential returns from your selected investment-linked funds. Your Relationship Manager will help you select the right funds, according to your risk appetite and goals.

The table below explains the basic differences between traditional life insurance and ILPs to help you match your goals with the right plan.

Benefits of Traditional Life insurance
  • Allows you to separate your protection from your investments.
  • You can decide to take a policy that covers a specific period e.g. until your child reaches adulthood. This is suitable if you have specific goals.
  • Flexibility in coverage period. As there is no investment element, you do not need to wait until your investments break even to terminate the plan.

Benefits of ILPs
  • Flexibility to withdraw money in times of emergency at any point throughout the coverage period.
  • Should you lose your source of income, you may use the accumulated investment funds to cover your premium and continue to enjoy the coverage.
  • Flexibility to choose your level of coverage and investment, depending on your financial circumstances.

We hope this article has provided you with a clearer understanding of the features and benefits of the two types of insurance. Your Relationship Manager will be able to provide you with a more in-depth look and help you make the best decision for protecting yourself and your loved ones.

The information contained herein are strictly meant to be as general information and reference for the product only. It does not constitute as a contract of insurance. For further details on the benefits, exclusion and terms and conditions of the product, please refer to the Product Brochure, Sales Illustration, Product Disclosure Sheet (PDS) and policy contract. Underwritten by Tokio Marine Life Insurance Malaysia Bhd, RHB merely acting as a distributor.

This is an insurance product that is tied to the performance of underlying assets, and is not a pure investment product such as unit trust.

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