What is a Linked Unit? Who is suitable for?

By Nipapan Poonsatiansup,CFP® Dependent Financial Planner

Believe that many people may have heard the term "unit link" or life insurance merge with investment already. This is a new life insurance policy that the insured will receive both life insurance and the opportunity to invest in the same policy. However, many of you still doubt in this kind of life insurance like this and want to know what it is exactly and who is it for? What are the criteria for choosing a unit linked life insurance? This article will solve all the concerns about unit linked insurance plan.

First, let's get to know the structure of life insurance premiums. Normally the traditional life insurance premiums such as term insurance, life insurance, saving insurance and retirement insurance, consists of 3 parts, 1. Expenses of insurance companies 2. Insurance premiums 3. The money the insurer invested in various financial assets. To be able to pay back or the dividend to the insured as specified in the policy. In most cases, the company invests in non-riskier assets such as government bonds. Because of traditional life insurance policies, it is often guarantee for the insured. So, insurers cannot invest in over-risk assets. As a result, the return on traditional insurance policies is relatively low.

On the other hand, the unit linked insurance, instead of, the company will invest the third part for us (It is required to invest in low risk assets.) The company will allow us to be able to "select" the investment itself through the "Fund" that the company selected. So, we can manage the return on investment at acceptable level of risk. The same as investing in mutual funds. We can earn a higher return in the long run

However, we cannot compare the return on investment in a unit-linked life insurance fund with direct investment in mutual funds. Because in the unit linked life insurance policy charges fees more than direct investment in mutual fund. And unit linked life insurance is also insurance that involves with cost of insurance and coverage. If you want to compare, should compare between traditional life insurance and unit linked insurance. Which can be compared as follows.


Comparison topic

Traditional life insurance

Unit linked life insurance

1.       Sum Insured

Fixed Life Insurance Cannot request for capital increase or decrease capital.

Flexible life insurance Can increase capital or reduce capital according to the conditions of the insurance.

2.       Premium

Pay at a fixed rate for the duration of the insurance.

More flexible You can set the payment period, premiums, pauses, premiums. Or pay extra premiums. (Subject to conditions of insurance and charges may apply if the conditions are not met).

3.       Coverage period

Depending on the type of insurance.

Up to 99 years old

4.       Expropriation

No clear costing.

Reveal cost clearly.

5.       Investment policy

The insurance company determines its investment policy under Office of Insurance Commission rules and regulations

Insurers can choose their own investment policy through mutual funds selected by insurance companies.

6.       Expected return

Guaranteed return is approximately 1 - 2% per annum. Clearly state IMMEDIATE ANNUITY and MATURITY Annuity when the contract is clear.

There is no guaranteed return. The expected return is based on the portfolio of the funds that the company pays for. And according to the acceptable risk level of the insured.

7.       Withdrawal from policy

Cannot withdraw money directly from the policy. You can borrow money from the policy. The interest must be paid at a fixed rate.

Can withdraw money from the policy. There may be a fee for withdrawal under the terms of the insurance.

8.       Death benefit

Equivalent to life insurance premiums or as specified in the policy contract.

Get cost of insurance with the value of money invested.

9.       Tax deduction right

Insurance premiums are deductible in full, but not exceeding the amount determined by the Revenue Department.

Only the total cost of insurance. It does not exceed the limits set by the Internal Revenue Service. Investments cannot be tax deductible.

We already know about the unit linked life insurance in brief. Next, we will analyze the strengths, weaknesses and who is suit with it.

Highlights of the unit link insurance are high flexibility. You can set the payment period. Coverage period and increase or decrease life insurance capital as necessary and appropriate for each life stage. You can choose to withdraw money from the value of investment in the policy itself. No need to borrow money in the policy or close the policy. And the chances of getting the expected return are higher than traditional life insurance. You can choose to invest in mutual funds based on the level of risk. If you have a long investment period, it will be able to accept higher risk.

However, the disadvantages of unit linked life insurance are not guaranteed the return. And there is chance of not getting the expected return. Investments in mutual funds that have higher levels of risk and must have a better understanding and knowledge more than the traditional life insurance.

So, life insurance is a unit link. It is suitable for insured persons who require flexible insurance in both life insurance and insurance premiums, transparency about the costs. Understand the investment in mutual funds and want to get a higher expected return than traditional life insurance.