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PERSONAL
INVESTING
COVER STORY
Factors
to consider
Shopping for an investment-linked insurance policy? Here are some
factors for your consideration:
The institution
behind the product
Find out if the insurer is a reputable company with an unblemished
track record in terms of service, product quality and fund management
and performance. How is it rated by the industry? Does it have the
financial strength and backing to tide itself through bad times?
This information is important — after all, you are giving them
your hard-earned money.
The people
behind the product
In the event of your untimely death or disability, your family will
be dealing with the insurance agent and employees of the insurance
company directly. Hence, it is important to work with people who
are committed and service-oriented. Are they people you can trust?
Make sure the agent is not a fly-by-night salesman.
The surrender
value
Due to the high initial costs, some investment-linked plans have
zero value in the first few years. These plans allocate the entire
or part of the premiums to settle the agent’s commission, distribution
costs, salaries and other expenses, in the first few years. If you
have nothing else to do with the money you put in, then such plans
may suit you. But if you foresee having the need to surrender the
policy in the short term, you may need to reconsider. Check the
fine print and ask your agent for clarification before signing on
the dotted line.
Risk tolerance
There is an element of risk when investing in investment-linked
products. How much risk can you take? What are your objectives for
investing in such products? The value of units held in an investment-linked
fund varies with the market performance. The NAV fluctuates and
may fall below the purchase price. Nevertheless, policyholders have
the assurance that the sum assured will be paid in the event of
the occurrence of the peril insured, even in a depressed market.
Beware of
hidden costs
Aside from mortality charges, there are initial charges, administrative
charges as well as a fee for managing the funds. Know what costs
you are paying when you invest.
Fund performance
How have the funds offered by your insurer been performing? In the
absence of professional performance ranking by independent organisations,
you will have to do some homework on your own. The NAV per unit
of funds available in the market are published in newspapers. To
gauge their performance, you will have to keep track of their NAV
per unit over time. One way is to compute the percentage increase
or decrease in the NAV per unit of the funds based on the NAV per
unit on a common date in the past. (It doesn’t help that the
NAVs listed in the papers are valued on different dates.) You will
have to compare like with like — funds within the same category
— for a meaningful comparison. Understanding the characteristics
of the fund will help in the analysis. For example, equity funds
are more volatile compared to income funds.
List of
investment-linked insurance available in Malaysia
CLICK HERE TO DOWNLOAD TABLES >>
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Personal Money / May 1, 2000
