What is Unit Link Insurance: Definition, How it Works, Risks and Examples

GOROOT – Unit Link Insurance, Do you often get insurance quotes from insurance agents? We don’t know where we got our cell phone number from, there are insurance agents who call and offer life insurance products to us by telephone.

One type of life insurance that is often offered by insurance companies to prospective customers is unit link life insurance. This unit-linked insurance product combines protection products and investment products. Because there are “frills” of investments with potential returns, unit link insurance usually attracts potential customers.

What is Unit Link Insurance

unit link insurance

unit link insurance

Buying unit link products is like drinking water while diving. While buying insurance products that provide protection, you can also buy investment products that provide returns. Get protection yes, get benefits too! Yes, that’s what many people imagine about unit link insurance products.

The explanation above is an ideal form of unit link insurance product. In fact, it’s not that simple. What is unit link insurance? How does it work? Big Alpha summarizes the important things you need to know below.

1. Combination of Insurance and Investment

As explained above, unit link insurance is a combination of insurance and investment products. So there are two benefits to unit link insurance, namely protection and investment return.

Insurance provides protection from a number of risks, such as death, illness, or disability to policyholders. While investments provide returns that can help policyholders achieve financial goals, such as education funds or pension funds.

Financial goals such as education and pension funds are certainly more difficult if you only rely on savings with small interest. Therefore, investment products combined with insurance provide various offers.

Where is the insurance money invested? Under the regulations, the money can be invested by insurance companies in a number of instruments. It can be in stocks, bonds, mix, or money markets. With these various investment instruments, policyholders need to understand that the investment risk is borne by the policyholder, not the insurance company or agent.

2. How Unit Link Insurance Works

The unit link insurance workflow can simply be explained as follows. The initial premium paid by the policyholder will be allocated for various things, ranging from protection to deductions to pay for acquisition costs,

The acquisition cost is the fee charged to the customer when purchasing a policy. These fees are usually used to pay for the company’s operational activities, including agent commissions. In addition, insurance premiums are also included in the selected investment instrument.

A number of premiums that are put into this investment instrument then generate investment returns. The proceeds from this investment will also be used to pay for insurance costs, additional insurance costs, and administrative costs.

So, insurance protection is paid for from the investment results. The investment value of the policyholder is deducted regularly to pay for insurance costs. After all, payments are completed then there is a value that can be taken by the policyholder. This portion can be disbursed for education funds or pension funds.

For the record, as long as the policy value is sufficient to pay the insurance costs, the insurance protection remains active. But if it’s not enough, the insurance company will ask the customer to top up the funds.

Also, keep in mind, the value of the policy is highly dependent on investment performance. The name of investment, yes, there are risks that loom, including losses. Currently, large-scale insurance companies offer this unit-linked insurance product. For example, Prudential, AXA Mandiri, Allianz, Sequis Life, and Manulife.

Unit-linked insurance products have now become the backbone of insurance companies. Why? Because the premium contribution from the unit link reaches 60 percent of the total insurance premium income in various companies.

Is unit link insurance profitable? Check out the reviews in the following article: Investing in Unit Links, Profitable?

3. Risky Unit Link Insurance

Because unit link insurance also contains an investment portion, there is a potential for loss in it. The existence of this risk of loss needs to be highlighted so that customers understand that unit link insurance is not only profit or return. Customers need to be aware that there is a potential loss in unit link insurance.

The public also needs to have careful consideration to choose whether to buy unit link insurance products or traditional insurance. Traditional insurance is insurance that is not associated with the investment.

4. Unit Link Type

It turns out that there are many types of unit link insurance. The difference between each type lies in the investment instrument chosen. In general, there are four types of unit link insurance according to the customer’s risk profile:

Money market link unit. In this type, the insurance company will place 100 percent of the customer’s portfolio in money market instruments such as time deposits, SBIs, and short-term debt securities. Customers who have a conservative risk profile are suitable for this type.

Fixed income link units. In this type, the insurance company will place 80 percent of the customer’s portfolio in bond instruments. Customers with a moderate risk profile are relatively more suited to this type.

Mixed link units. In this type, the insurance company will place the customer’s portfolio in stock and bond instruments with a certain portion.

Lastly, unit link shares. As the name implies, the insurance company will place a customer portfolio of at least 80 percent in shares. The risk is quite high, but also offers a high return or high-risk high return.

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