Investment-linked insurance in Malaysia: everything you need to know before you invest

Investment-linked insurance combines insurance protection with exposure to selected investment funds within a single policy. For individuals looking to build long-term financial security, this combination can offer a way to address protection needs while participating in the potential growth of investment-linked funds.

An ILP is an insurance product that combines insurance protection with an investment component, where the policy value is linked to the performance of the selected underlying investment funds. Insurance charges and other policy costs are deducted according to the policy terms. Understanding how these elements work together is important before deciding whether an ILP is suitable for an HNWI’s financial objective.

For high-net-worth individuals, the decision requires a broader perspective. An ILP should be considered alongside existing investments, insurance coverage, liquidity requirements, family responsibilities, and long-term wealth objectives.

The more useful question is whether the policy’s protection, investment options, costs and risks fit the HNW individual’s objectives and wider financial strategy.

Key takeaways

• ILPs combine insurance protection with exposure to selected investment-linked funds.  
• The value of the investment component can rise or fall with the performance of the underlying funds.
• The flexibility available, including fund selection and switching, varies by policy and its terms.
• Investment returns are not guaranteed, and fund values can fluctuate with market performance.  
• Insurance charges, policy fees, fund management charges, and other applicable costs can affect the policy's value and sustainability.
• HNW individuals should assess an ILP against their existing portfolio, protection requirements, liquidity needs, and broader wealth objectives.
• An ILP should be reviewed periodically to ensure that it continues to meet the HNW individual’s financial needs.

What is investment-linked insurance in Malaysia?

Investment-linked insurance is an insurance product that combines life insurance protection with an investment component.  Depending on the policy structure, part of the premium may be allocated to selected investment-linked funds, while applicable charges are applied according to the policy terms.

For HNW individuals researching ILP Malaysia options, the first step is understanding how the insurance and investment components work together. The value of the investment component can fluctuate based on the performance of the selected investment-linked funds. This differs from insurance products that generally focus on providing defined insurance benefits rather than directly linking policy value to the performance of selected investment funds.

This structure means that HNW need to consider both the protection provided by the policy and the risks associated with its investment component. Fund performance and applicable charges can affect the value of the investment component. The nature and amount of the applicable charges, and how they are deducted, depend on the terms of the relevant policy. The specific charges and how they are applied depend on the policy terms.

In Malaysia, investment-linked insurance business is subject to Bank Negara Malaysia's regulatory requirements, including requirements concerning matters such as premium allocation, policy sustainability and disclosures to policyholder. HNW individuals should refer to the applicable product disclosure documents and current regulatory requirements when considering an ILP.

Manulife Malaysia currently offers several investment-linked plans, including ManuLink Essential/Essential Plus, Manulife Asset Shield, Manulife Heritage and ManuLink Wealth. Product availability, features and benefits may change from time to time. Please refer to the latest product information and applicable disclosure documents for current details.

An ILP can form part of a broader financial plan when its protection and investment features align with the HNW individual’s objectives. Its role should be considered alongside existing investments, insurance coverage, liquidity needs and the HNW individual’s overall risk profile rather than as a standalone investment decision.

How does investment-linked insurance work in Malaysia?

An investment-linked policy brings together premium payments, insurance protection, investment funds and policy charges within one structure.

Understanding how these components interact can help HNW individuals assess whether an ILP is appropriate for their needs.

Premium allocation

When premiums are paid, the amount is allocated according to the terms of the policy. Premiums are allocated and applicable charges are deducted in accordance with the terms of the particular policy. The amount allocated to purchase units in the selected investment-linked funds may therefore differ from the total premium paid. The allocation structure can vary between products, so HNWI Individuals should review the relevant product disclosure documents before making a decision.

Insurance protection

The insurance component provides coverage based on policy terms. Depending on the plan, this may include benefits associated with death or total and permanent disability, while additional benefits may be available through optional riders.

Depending on the particular Manulife ILP and its terms, insurance protection and optional riders or supplementary benefits may be available. The applicable benefits, exclusions, limitations and other terms should be confirmed from the relevant product disclosure documents and policy contract.

Investment-linked funds

The investment component is linked to selected investment funds.

The value of these funds can increase or decrease depending on market performance. Returns are therefore not guaranteed, and past fund performance does not indicate future performance.

HNWI Individuals should consider the fund's investment objective, asset allocation, risk profile, charges and investment horizon before selecting a fund.

Insurance charges and other costs

An ILP involves costs associated with providing insurance coverage and administering the policy.

These may include insurance charges, policy fees and fund management charges, depending on the product.

Because these charges may be deducted from the value of the investment-linked funds in accordance with the policy terms, HNWI Individuals should understand how the applicable charges are calculated and how they may change over the policy term.

Policy sustainability

The relationship between the value of the investment-linked funds and ongoing policy charges is an important consideration for policy sustainability.

If the investment fund value falls significantly while charges continue to be deducted, there may be implications for the sustainability of the policy.

Policyholders should understand how fund value and ongoing charges can affect the sustainability of their coverage.

Is investment-linked insurance suitable for high-net-worth individuals?

Investment-linked insurance may be relevant to high-net-worth individuals who want to combine insurance protection with investment exposure, but suitability depends on the individual's financial objectives and circumstances.

Being an HNW investor does not automatically make an ILP appropriate. The more relevant question is what role the policy is expected to play within the broader wealth strategy.

Consider the purpose of the policy

The first step is to identify why the HNW individual is considering an ILP.

The objective could include:

• Providing life insurance protection
• Providing investment exposure alongside long-term insurance protection
• Addressing family protection needs
• Complementing an existing investment portfolio
• Supporting broader financial or legacy objectives

A clearly defined objective can make it easier to assess whether the features of an ILP are appropriate.

Consider existing investments

HNW individuals may already hold a diversified portfolio across equities, fixed income, property, businesses, cash and other assets.

An ILP should therefore be evaluated based on what it adds to the overall portfolio rather than considered in isolation.

Consider risk tolerance

The investment component is exposed to market movements. HNW individuals should consider whether the risk profile of the selected funds is appropriate for their overall financial position.

This includes looking at the potential impact of market volatility on the ILP as well as on the wider portfolio.

Consider liquidity requirements

Although an ILP may permit withdrawals subject to the applicable policy terms and conditions, it should not be regarded as equivalent to cash or other highly liquid assets. HNW Individual should consider the effect that any withdrawal may have on the policy value, benefits and sustainability of the policy. HNW Individual should therefore maintain appropriate liquidity outside the policy to address short-term or unexpected financial requirements.

Consider long-term affordability

An HNW individual should also assess whether they can maintain the policy and associated premiums over the intended period.

For HNW individuals, this assessment should take into account existing financial commitments, investment strategies and future changes in wealth or income.

This is particularly relevant because investment performance, policy charges and changes in circumstances can affect the policy's sustainability over time.

What are the benefits and risks of investment-linked insurance plans?

Investment-linked insurance can offer several potential benefits, but these should be considered alongside the risks and costs associated with the product.

Potential benefits

Combining protection and investment

An ILP brings insurance protection and investment exposure together within one policy.

This can be useful for HNW individuals who want to address both objectives as part of a broader financial strategy.

Investment flexibility

Depending on the plan, policyholder may have access to different investment-linked funds and may be able to adjust their fund allocation.

Depending on the plan, policyholders may be able to switch between available investment-linked funds, subject to the applicable policy terms and conditions. Please refer to the relevant product documents for the fund-switching options currently available.

Investment exposure and potential returns

The investment component provides exposure to selected investment-linked funds. The value of that investment component may increase or decrease depending on the performance of the selected funds, and returns are not guaranteed.

However, returns are not guaranteed and depend on fund performance. 

Potential risks

Market risk

The value of investment-linked funds can fluctuate based on market conditions.

A fall in the value of the underlying investments can therefore reduce the value of the investment component of the policy.

Non-guaranteed returns

Investment-linked fund performance is not guaranteed.

HNWI individuals should not make decisions based solely on historical performance.

Charges and fees

Insurance charges and other applicable costs may reduce the value of the investment-linked funds, depending on how the applicable charges are deducted under the policy terms.

HNWI individuals should understand these costs before purchasing an ILP.

Policy sustainability

If the fund value falls while applicable charges continue to be deducted, the policy may become less sustainable.

The potential impact depends on the policy structure, fund performance, charges, and other factors.

Need for monitoring

An ILP should not necessarily be treated as a set-and-forget financial product.

HNWI Individuals should periodically assess the policy, fund allocation, protection needs, and broader financial circumstances.

What should high-net-worth individuals consider before choosing an investment-linked plan?

For HNWI Individuals, selecting an ILP should involve more than comparing projected investment values.

The policy should be assessed against the investor's complete financial position and the specific role it is expected to fulfil.

Risk tolerance

The investment funds selected should match the investor's risk tolerance and investment horizon. HNWI Individuals should also consider how the potential volatility of those funds fits within their wider portfolio.

Consider fund performance

HNWI Individuals should consider a fund's investment objective, asset allocation, risk profile, charges and, where relevant, historical performance. Historical performance should not be relied upon as an indication of future performance.

Insurance protection

HNWI Individuals should review the policy's coverage, benefits, exclusions and optional riders to determine whether the protection provided remains appropriate for their needs.

Costs and charges

HNWI Individuals should review the applicable insurance charges, policy fees and fund-related charges and understand how these costs can affect the policy's value and sustainability.

Long-term affordability

HNWI Individuals should consider their ability to meet any applicable premium payment obligations and the effect of ongoing policy charges over the intended policy term, particularly if fund performance or applicable charges change over time.

Portfolio fit

Finally, consider how the ILP interacts with existing investments and insurance.

The objective should be to determine whether the policy fills a specific gap or serves a defined purpose within the wider wealth strategy.

Investment-linked insurance vs direct investments

Investment-linked insurance and direct investments are designed to address different financial objectives.

For HNW individuals, both approaches may potentially form part of a broader financial strategy, depending on their individual objectives.

How often should high-net-worth Individuals review their investment-linked plans?

An ILP should be reviewed periodically to ensure that it continues to meet the investor's objectives and remains appropriate as circumstances change.

A review may be appropriate following a significant change in financial circumstances, investment objectives, or protection needs. A review does not necessarily require changes to the policy or investment allocation but provides an opportunity to reassess whether the policy remains appropriate for its intended purpose.

What happens if investment-linked funds perform poorly?

Poor investment performance can reduce the value of the investment-linked funds. This does not necessarily mean that insurance coverage will immediately cease. However, a decline in value may affect policy sustainability where applicable charges continue to be deducted.

If there is insufficient value to meet applicable charges, this may affect the sustainability of the policy and, subject to the policy terms, could ultimately result in the policy lapsing and insurance coverage ceasing.

 If fund performance is weak, HNWI Individuals should review the current fund value, applicable policy charges and whether the policy remains sustainable.

Investment decisions should be based on the investor's objectives and circumstances rather than short-term market movements alone.

Common mistakes to avoid when investing in ILPs

1. Focusing only on potential returns

An ILP combines insurance and investment features. Evaluating it only on potential investment performance overlooks the protection component and associated policy costs.

2. Ignoring charges and policy sustainability

Insurance charges and other policy costs can affect the policy's value over time.

HNWI Individuals should understand these charges and consider how they may affect the sustainability of the policy.

3. Choosing funds based only on past performance

Historical performance does not guarantee future results.

HNWI Individuals should also consider investment objectives, risk profile and portfolio suitability.

4. Treating an ILP as a standalone investment

An ILP should be considered alongside existing investments, insurance and liquidity requirements.

5. Overlooking liquidity requirements

Not all assets serve the same purpose.

HNWI Individuals should ensure they maintain sufficient liquid resources for short-term and unexpected financial needs.

6. Failing to review the policy

Financial objectives, family circumstances, investment portfolios and protection requirements can change.

An ILP should therefore be reviewed periodically rather than treated as a one-time decision.

Conclusion

Investment-linked insurance provides life insurance protection together with an investment component, and may be suitable for individuals seeking insurance protection with exposure to selected investment-linked funds.

However, an ILP should not be viewed simply as an alternative to direct investing. Its value depends on how well its insurance protection, investment options, costs and policy structure align with the investor's financial objectives.

For high-net-worth individuals, this assessment is particularly important because an ILP should fit within a broader wealth strategy that may already include investments, property, business interests, retirement assets and other forms of insurance.

Understanding the investment risks, applicable charges and policy sustainability is essential before making a decision.

A well-considered approach starts by defining the role the ILP is expected to play, assessing how it fits with the existing financial position and reviewing the policy periodically as circumstances change.

For complex financial situations, HNWI Individuals may wish to seek advice from a qualified financial professional before making decisions about investment-linked insurance.

Important: This article contains general information only and does not constitute investment, financial, legal, or tax advice. Investment and wealth accumulation strategies may not be suitable for all individuals and are subject to risks, including the possible loss of principal. Readers should carefully consider their personal objectives, financial circumstances, and risk appetite, and obtain appropriate professional advice before making any investment or financial planning decisions.

Source links:

• Manulife Malaysia — Investment-Linked Plans
• Manulife Malaysia — ManuLink Wealth
• Manulife Malaysia — ManuLink Essential & Essential Plus
• Manulife Heritage | Investment-Linked Plan
• Bank Negara Malaysia — Policy Document on Investment-Linked Business (2023)
• Manulife Malaysia — Guide to Investment-linked Policy Owners on Insurance Coverage