Insurance firms drum up business with unit-linked products
Thursday, January 10, 2008 Labels: Unit Link 0 commentsIwan Suci Jatmiko Contributor/Jakarta (the Jakarta post 06/12/07)
Times of low bank interest is the right moment for an insurance company to expand its business by promoting its latest products. In addition, traditional insurance products are slowly being abandoned because people have become more concerned with investment.
Recently, the unit-linked investment plan (ULIP) has started to boom. In fact, in the U.S., this product is known as variable life insurance. The ULIP includes life insurance, and as such is regulated under the Securities Act. ULIPs have not been that successful in the U.S. but in Australia, Britain, Canada and Holland, they are highly successful.
Although in Indonesia ULIPs are gaining popularity, many people are confused about what a unit-linked product actually is.
"A unit-linked investment plan is a life insurance product that is linked with investment. In a unit-linked investment plan, the life insurance product gives protection against a certain circumstance according to the policy while the investment gives a return depending on market performance," said Eddy KA Berutu, executive director of the Indonesian Life Insurance Association (AAJI).
This means that a client can enjoy protection under the main product plus a return on investment from the management of part of the premium. In short, part of the premium is used to finance the insurance and another part for investment. "The insurance premium that a client pays will be used for protection and also for the purchase of a number of investment products managed by the insurance 'company. The unit price depends on the performance of the investment funds being managed. The benefit of the policy will be paid to the client or his or her heir. The amount depends on the investment return of the unit owned," said Eddy, also secretary-general of the Federation of Indonesian Insurance Associations (FAPI).
Under such a plan, a client chooses the type of policy best suited to his needs or financial planning and agrees to the risks involved and the duration of investment required. Plans on offer include:
•U.S. dollar fixed income fund, namely maximizing a long-term fund through investment in U.S. dollars in bonds and other money market instruments. The allocations of the assets are deter¬mined by a fund manager and can be changed from time to time. This type of investment is suitable for those wishing to invest in U.S. dollars.
•Rupiah managed fund, namely maximizing the development of a long-term fund through investment in rupiah-based bonds, stocks as well as other money market instruments. Asset allocation, deter¬mined by a fund manager, can be changed from time to time. This fund is suitable for those wanting a long-term investment return. Investment risk is varied and not too-high.
•Rupiah equity fund is aimed at maximizing mid-and long-term earnings through investment in companies listed on the Jakarta Stock Exchange (JSX). This type of investment is suitable for those wanting to have a bigger long-term investment return. This type carries a higher risk.
•Rupiah fixed income fund is aimed at obtaining an attractive investment return through placement of funds in rupiah through a fixed income instrument such as bonds and other money market instruments. This type of investment produces mid- and long-term investment returns at a high level of security and stability. This type of investment is suitable for conservative investors wanting a stable long-term income. It carries a medium risk.
•Rupiah Cash Fund is aimed at obtaining a maximum investment return through the placement of funds in rupiah through money market instruments such as term deposits or promissory notes. This choice offers an attractive investment return at a high security level. This type of investment is good for conservative investors wanting a stable investment income. There is .a medium investment risk.
Eddy said that to choose a suitable ULIP, one should find a suitable policy type for one's protection and investment. Therefore, it is very important to plan your financial affairs so that you can optimize your source of money and make it work for you during the different phases of your life, for example:
•During the 20s. At this age, generally someone has just started earning an income. The challenge is to meet daily needs and at the same time set aside some money for the future. Even though at this age a person does, not need a lot of money, they should prioritize an insurance policy that comes with income protection. The insurance policy should also protect against unforeseeable circumstances, such as health crises and accident.
•During the 30s and 40s. In general, a person is usually married with children at these ages. As there is a bigger financial demand and obligation with a family, financial protection for the family assumes more importance. One must review one's insurance policy as it should reflect a higher income level and a bigger financial obligation for the family. It is best to choose a policy that contains an element of savings to cover the future educational costs of any children. In general, older people are not accepted as new policyholders for a health insurance program, and it is therefore a good idea to sign up for such a program during a person's 30s or 40s, when their health is still good.
•During the 50s and above. As off spring generally have their own earnings and mortgages are almost settled, there is generally less need for insurance -at these ages. Now is the time f or a person to review their insurance policy. However, it is important to take into account that in this age range. a person is more prone to health problems and it would therefore be a good idea to have an insurance pol¬icy with long-term care, which would be useful in the event of ill health.
Another thing to consider is the ability to keep paying the insurance premium through retirement. Therefore, now would be the right time to review the existing insurance policy and discuss with an agent which policy would gives the best coverage during retirement.
