Both provide investment and protection benefits, which one should we choose: Unit-linked insurance or dual-purpose insurance? Before deciding what insurance is right for you, consider the following simple explanation.
As the name suggests, Endowment insurance does offer two uses. First, dual-purpose insurance provides life protection. Second, this insurance is like saving money. That is, one has to pay a premium every month during the agreed period.
For example, Budi takes dual-purpose insurance with a cash value of IDR 1 billion for 30 years. This means that Budi has to pay a premium for 30 years. If there is a risk of death for Budi, the heirs will receive a benefit of Rp. 1 billion.
What if there is no risk to Budi? In the 31st year, Budi will still receive life benefits or non-disaster benefits with the same value, which is IDR 1 billion. This means that dual-purpose insurance provides a guarantee or guarantee to premium holders to obtain cash benefits that have been agreed upon at the beginning.
So what's the difference with unit link insurance? Unit link insurance is insurance with an investment in it. The premiums we pay will be invested into investment instruments according to what we want. The goal is to get maximum returns.
For example, Budi chooses unit link insurance with the same period, which is 30 years. It could be that the cash benefit obtained is greater than IDR 1 billion or it may be smaller, depending on the chosen investment portfolio.
Here, premium holders have the accessibility to choose their investment instrument, whether in mutual funds, money market, stock market, bonds, or even a mixture of these instruments. That is, it is the premium holder who bears the risk of the unit-linked investment.
Things You Need to Know About Dual Purpose Insurance
As previously explained, dual-purpose insurance has two main functions, namely life protection and also as savings. Because it offers two long-term benefits, dual-purpose insurance is suitable when the policyholder is of productive age.
With benefits that can be felt in the range of 10 years or 15 years into the future, customers can choose dual use to plan for the future, such as for education funds, old age funds when retiring, or protection funds for families if the insured dies.
In terms of its purpose as an education fund, even though it is intended for children, it is better that the policy holder remains on behalf of the parents. Because if something unexpected happens to the parents, the child can still continue his education with the cash value obtained from the Dwiguna Insurance.
How Unit Link Insurance Works
Talking about unit link insurance, many people misunderstand about unit link. Many consider that unit link insurance is an investment. As a result, they always think they will get high returns from the deposited funds. In fact, investing in unit links has a specific purpose. What is it and how do unit links work?
So far, we often recognize two types of life insurance, namely pure or traditional insurance, and unit link or dual-purpose insurance. These two insurances have different characteristics and purposes.
Pure life insurance is generally in the form of health protection for both hospitalization and protection for certain diseases. Usually, this insurance has a term, ranging from 5 to 20 years.
Unit link insurance is suitable for those who want to be protected when there is a risk of death during their productive age. Thus, the Sum Assured (UP) provided will benefit the family as a substitute for income lost due to death.
Meanwhile, dual-purpose or unit-linked insurance is life insurance plus investment. This insurance in addition to providing health protection along with UP, also provides cash value benefits.
The cash value given is the result of the development of funds from the investment manager appointed by the insurance company. Like other investments, the investment value in unit links is quite volatile so it has risks.
2 Important Things About Unit Link Insurance
To find out whether the investment provided by Unit Link Insurance meets our expectations, first understand the following two things:
Understand the Type of Funds in Unit Link
Often people expect to get high returns from invested premiums. However, the results obtained are highly dependent on two things. First, the type of fund or mutual fund that is deposited from a premium. Second, the condition of the capital market in the country.
The thing to remember, unit link insurance is not the same as investing in the stock exchange or the like. This is because this type of insurance is more for future planning efforts and protecting families from risk.
The insurance company will allocate the customer's premium to the fund portfolio in accordance with the customer's risk profile as an investor. If the customer is an investor with an aggressive risk profile, then the appropriate mutual fund is the stock market or equity fund.
However, if the customer is an investor with a low risk profile, he or she can ask the insurance company to allocate premiums to a fixed income fund or a balanced mutual fund. However, the returns obtained are not as high as those of equity funds.
Investment as a hedge of rising healthcare costs
What should also be realized is that investment in unit links is also associated with health costs, which continue to increase from time to time. According to the Willis Towers Watson survey, the average increase in health costs in Indonesia reaches 10-11 percent per year. This increase exceeds the national average inflation which is perched at the 3% figure.
Of course, customers can calculate how much health costs will be in the next 10 years if the increase is 10% per year. If this year the operating cost is Rp. 20 million, in the next 10 years, the cost may increase by Rp. 35 million.
That is why insurance premiums on unit links are static or do not increase, unless the customer changes the type of plan. On the other hand, for non-unit-linked insurance, the premium value will be updated annually following market conditions and the policyholder's medical history.
Customers may want to look at Asuransi MiSmart Insurance Solution (MiSSION) from Manulife Indonesia. In addition to the customer being able to benefit from reimbursement of hospital expenses according to the bill obtained from additional insurance that can be purchased together with basic insurance, customers will also get 50% of the annual basic premium at the end of the 10th policy year and 700% of the annual basic premium at the end of the policy year. the 25th policy year, as well as the optimal UP that can be adjusted to the needs.
So far, have you thought about the benefits of investing in unit link insurance and dual-purpose insurance?