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Guide to Investment-linked Policy Owners on Insurance Coverage

Guide to Investment-linked Policy Owners on Insurance Coverage

       

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What is an investment-linked Policy?

An investment-linked policy is a life insurance policy that combines investment and protection. The policy benefits tied to the performance of the fund(s) which you selected.

How an investment-linked policy works?

  • A portion of the premium you pay is invested in the fund of your choice.
  • This fund value is used to pay for insurance charges and other charges.
  • Your investment-linked policy will stay in effect, providing you with the expected protection you signed up for, as long as the fund value is sufficient to pay for all the charges deducted from the fund each month.

What are the key features of investment-linked policies?

The key features of investment-linked policies are:
  • You are given the flexibility to choose your own level of protection and investment.
  • You can vary the amount of your premium payments or coverage according to your changing financial circumstances.
  • A portion of the premium you pay is invested in the fund of your choice.
    You can choose from a wide variety of funds to invest in, depending on the level of risk that you are comfortable with.
  • You bear all the investment risk and potential reward. In other words, your fund value is not guaranteed and can go up or down depending on the fund performance. This may affect your benefits/ protection coverage.

What could reduce my investment-linked policy fund value and affect my policy sustainability?

The following factors can impact your fund value, and may result in your fund being insufficient to sustain your policy for the full policy term:
  • Not paying premiums when it is due.1
  • Choosing not to increase premiums when increasing protection cover (e.g. adding riders).1
  • Choosing not to increase premiums or perform top up when there is increase in insurance/ other charges.
  • Making partial withdrawals from the fund.
  • Poor investment return
In addition, when you purchased your policy, you may have selected your premium amount based on your affordability. With various options on sustainability, you may have chosen the premium amount that suits your financial capability but may not be enough to sustain your policy for the full policy term.

1Not applicable to single premium policy.
 

How do premium payments affect my policy sustainability?

You have the flexibility over premium payment – you can increase, decrease or defer premium payment (premium holiday).
  • Paying premium on time will improve your fund value / policy sustainability.
  • Increasing your premium will improve your fund value / policy sustainability.
  • Decreasing or deferring premium payment will reduce your fund value and your policy may not stay in effect as long as you might desire.

How do insurance charges affect my policy sustainability?

The insurance charges for your insurance protection (providing the death benefit and any optional coverage chosen such as medical insurance and critical illness) are deducted every month from your fund value. These insurance charges are expected to increase with age as you get older.

The insurance charges of certain optional coverages such as medical and surgical coverage may increase to a greater degree when compared to the original expected insurance charges. This will occur if the actual rate of medical claims is consistently higher than what was expected when you bought the policy.

You should review your coverage periodically to ensure that the level of premium you pay could support the current and future insurance charges, other charges and applicable tax (if any).

How do investment returns on my funds affect my policy sustainability?

The actual investment returns in your fund are important. The premium you pay and the actual returns on your fund greatly determine how long your investment-linked policy will stay in effect.
  • Higher return from fund will improve the fund value and policy sustainability.
  • Negative or lower return from fund will result in a lower fund value and your investment-linked policy will stay in effect for a shorter period.

Are projections from previous sales illustrations reflective of the current market environment?

The calculations in the sales illustrations are based on hypothetical illustration rates for the investment returns of the funds you’ve chosen and the charges of the various benefits under your investment-linked policy at the time of product launch. Actual fund value varies due to various factors as explained in question 4.

How do I know how long my investment-linked policy coverage can be sustained?

In an effort to assist you to better manage and understand your investment-linked policies, HLA will be providing both additional disclosures at point of purchase as well as annual updates on the sustainability of your respective policies.
 
This exercise will begin from 1st July 2019 with the distribution of educational material on what is “sustainability”, factors that affect sustainability and options you may have to improve the sustainability of your investment-linked policy.
 
This will be followed by individual disclosure starting 1st January 2020 where you will receive an annual update stating how long your investment-linked policy is expected to be in effect at the current premium levels, all the charges and applicable tax (if any). This comes with some recommendations to sustain your policy up to full policy term.
 
As an interim measure, from 1st July 2019 until 1st January 2020, you will receive notification if there is a risk that your policy may lapse within one year with some recommendations to sustain your policy up to full policy term.

Is it compulsory to take one of the recommendations advised by HLA to sustain policy up to full policy term?

It is not compulsory to take any of the recommendations from HLA. You can choose to sustain your policy for the length of coverage desired. Please reach out to your servicing representative, or our Branch Office, or our Head Office Customer Service for proper advice on the amount of regular premium or an additional top-up premium or adjustment on insurance coverage required that would be expected to sustain your policy for the length of coverage desired.

What can I do if my investment-linked policy cannot be sustained as long as I need it to be?

If, after reviewing your investment-linked policy coverage, you find that your protection is not likely to be sustained for as long a period as you feel you need, you have several options:
  • You can increase the amount of your planned regular premium. Please ask your servicing representative, or our Branch Office, or our Head Office Customer Service to calculate the amount of regular premium required that would be expected to sustain your policy for the length of coverage desired.
  • You can pay an additional top-up premium. This is an ad-hoc additional payment that you can make anytime that will increase your investment-linked policy fund value and prolong the period your policy can be sustained. Please ask your servicing representative, or our Branch Office, or our Head Office Customer Service to calculate the amount of an additional top up premium required that would be expected to sustain your policy for the length of coverage desired.
  • You can reduce your sum assured and/or reduce or remove optional supplemental coverages/ riders. Please contact your servicing representative, or our Branch Office, or our Head Office Customer Service for us to better understand your needs and affordability concerns and propose a suitable option to sustain your policy for the length of coverage desired.

What will happen if I choose not to do anything?

With the flexibility of investment-linked policy as described in question 3, comes the need to regularly review your policy to ensure that the level and duration of the coverages you need are expected to be supported by the amount of premium you pay. If you do not take any action, your policy may not be able to remain in-force until full policy term or for the length of coverage desired and you will no longer enjoy your investment-linked policy coverage then.

How about the sustainability of the new investment-linked policy I purchased recently?

With effect from 1 July 2019, the recommended premium from our sales illustration tool is such that the policy is projected to be sustainable for the full policy term assuming you pay premium regularly.
 
If the investment-linked policy that you have purchased is prior to 1 July 2019, you may have chosen the premium amount based on your affordability which may not be enough to sustain your policy for the full policy term.
 
Nevertheless, the actual charges and investment returns can vary throughout the duration of the policy. Since returns and charges can vary, your fund value can vary as well. This may result in your fund value being insufficient to sustain your policy for the full policy term. Please refer to question 4 for the factors that can impact your fund value and affect your policy sustainability.
 

What is the purpose of the new investment-linked guidelines?

The objective of the regulation is to ensure that policy owners understand the process, enhance their understanding of investment-linked policies and to protect their interest. Ultimately, the consumer can make an informed decision when purchasing an investment-linked insurance policy.

Are other insurance companies having the same rules for investment-linked policies?

Yes. The new investment-linked regulations were issued by BNM to the insurance industry.

Who should I refer to if I require further clarification?

Please contact your servicing representative, or our Branch Office, or our Head Office Customer Service Hotline at 03-7650 1288.