Key takeaways
- Bank Negara only requires 60% of each regular ILP premium to buy fund units in years 1 to 3, 80% in years 4 to 6, 95% in years 7 to 10 and 100% from year 11; the rest pays commission and the insurer's expenses.
- Every month the insurer cancels units to pay the cost of insurance for the basic cover and each unit-deducting rider, plus a policy fee (RM6 a month on Great Eastern's SmartProtect You).
- Fund management charges come out through the unit price and are capped by Bank Negara at 1% a year for money market or fixed income funds and 1.5% for other funds.
- ILP returns are not guaranteed: Malaysian sales illustrations show two hypothetical returns, 2% and 5% a year for most funds, and unit prices can fall as well as rise.
- On a premium holiday the charges, including a medical rider's, keep coming out of the fund, and the policy and its medical card lapse when the units can no longer pay them.
- Before a partial withdrawal the insurer must run a sustainability test; at Great Eastern the result comes within 14 days, and the sum assured may be reduced, depending on the policy.
What is an investment-linked policy, and are the returns guaranteed?
An investment-linked policy (ILP) is a life insurance policy whose value is tied to investment funds you choose. Great Eastern's product disclosure sheets put it plainly: it is an insurance product tied to the performance of the underlying assets, not a pure investment product such as unit trusts. You buy it for protection first; the fund is the engine that pays for that protection over the years.
Here is how the pieces fit, using Bank Negara Malaysia's policy document on investment-linked business (issued 13 February 2023):
- You pay a regular premium.
- Part of it, the allocated premium, buys units in the fund or funds you picked. The rest is unallocated.
- Every month, units are cancelled to pay the insurance charges for your cover and riders, and the policy fee.
- What remains is your total investment value, the cash value on your statement. It rises and falls with the unit price.
On death or total and permanent disability, the payout depends on the plan. On Great Eastern's SmartProtect You it is the basic sum assured, plus an extra 1% of it for every policy year (up to 40%), plus the total investment value. Bank Negara requires the illustration to state whether a plan pays the higher of the sum assured and the unit value, or both together, so look for that line in yours.
Are the returns guaranteed?
No. The Life Insurance Association of Malaysia (LIAM) says the return on an investment-linked fund is not guaranteed because unit prices rise and fall, and you may even get back less than you invested. A product may only be marketed as capital guaranteed if it is backed by an explicit guarantee (paragraph 14.4 of the policy document). The two rates in a sales illustration, 2% and 5% a year for most funds, are hypothetical examples to show how charges and cash values interact. They are not forecasts.
| Part of the policy | Guaranteed? | What the documents say |
|---|---|---|
| Sum assured | Payable while the policy is in force | Paid on death or TPD as long as the policy has not lapsed |
| Fund value (cash value) | No | Moves with the unit price; past performance is not a guide to the future |
| Insurance charges | No | Can be revised on the policy anniversary for all policyholders, whatever their own claims |
| Policy fee and fund management charge | No | Can be raised with at least 3 months' written notice (30 days for medical riders) |
| No-Lapse Guarantee, where the plan has one | Only if its conditions are met | On SmartProtect You: first 3 policy years, every premium paid on time and no withdrawal |
Where does each premium go? Allocation rate, cost of insurance, policy fee, riders and top-ups
Your sales illustration and annual statement use a handful of terms. This is what each one means, with the figures from the documents I checked.
| Term | What it means | Figures from the sources |
|---|---|---|
| Premium allocation rate | The share of each premium that buys fund units | Bank Negara minimum: 60% in years 1 to 3, 80% in years 4 to 6, 95% in years 7 to 10, 100% from year 11 |
| Unallocated premium | The part that does not buy units | Pays commission to the intermediary and the insurer's expenses (Great Eastern PDS) |
| Cost of insurance (insurance charge) | The monthly price of your life cover, taken by cancelling units | Varies with sum assured, age, gender, occupation class, smoking and health; rises as you grow older |
| Policy fee | A fixed administration fee taken from your units | RM6 a month on SmartProtect You |
| Fund management charge (FMC) | The yearly fee for managing the fund, built into the unit price | Capped at 1% of the fund's value a year for money market or fixed income funds and 1.5% for others; 0.50% to 1.50% across SmartProtect You's funds |
| Rider | Extra cover such as a medical card, critical illness or premium waiver | Unit-deducting riders are paid from your fund; premium-paying riders need their own premium |
| Top-up | Extra money paid in on top of the regular premium | At least 95% must buy units; Great Eastern's minimum single premium top-up is RM1,000 per fund |
| Other charges | Switching, partial withdrawal, top-up or surrender charges, where a plan has them | Must reflect the insurer's actual expenses, and it must not profit from them |
Insurers may allocate more than the minimum. SmartProtect You, for example, allocates 60% in years 1 to 3 and 80% in years 4 to 6 for premium terms of 20 years and above, then 95% in years 7 and 8 and 100% from year 9. Shorter premium terms start higher: 80% in years 1 to 3 for a 10-year term. Your own rates are printed in your sales illustration.
One sentence in Great Eastern's SmartProtect Junior disclosure sheet explains most of what follows: the higher the level of insurance cover you choose, the more units are used to pay the insurance charges, and the fewer units remain to build your investment value. A top-up works the other way: LIAM describes it as a way to add to the investment portion without changing your insurance cover.
Why is my cash value lower than the premiums I paid, even after 10 years?
This is the question I hear most when people show me an ILP statement. It is rarely a mistake. Five things keep the cash value below what you paid:
- Low allocation in the early years. Up to 40% of each premium in years 1 to 3 does not buy units at all.
- Monthly insurance charges. Your life cover and every unit-deducting rider (medical card, critical illness, accident) is paid out of the fund every month, for as long as the policy runs.
- Charges that rise with age and with repricing. The cost of insurance goes up as you get older, and medical rider charges can be revised for everyone when medical costs climb.
- Fund performance. If unit prices fall, the units you hold are worth less.
- Your own actions. LIAM's guide for investment-linked policy owners lists not paying premiums when due, partial withdrawals, adding cover without raising the premium, and not topping up when the insurer raises its charges as things that reduce your fund value.
A worked example: where 10 years of premiums went
Example only, to show the mechanism. It is not the price or a projection of any plan. Assumptions: a premium of RM3,000 a year, the SmartProtect You allocation rates for a premium term of 20 years or more, insurance charges and policy fee totalling RM1,200 a year for the life cover and riders, and the fund's own gains and losses left out.
| Policy years | Premiums paid | Used to buy units | Charges taken (example) |
|---|---|---|---|
| 1 to 3 | RM9,000 | RM5,400 (60%) | RM3,600 |
| 4 to 6 | RM9,000 | RM7,200 (80%) | RM3,600 |
| 7 to 8 | RM6,000 | RM5,700 (95%) | RM2,400 |
| 9 to 10 | RM6,000 | RM6,000 (100%) | RM2,400 |
| Total, 10 years | RM30,000 | RM24,300 | RM12,000 |
In this example, RM30,000 has been paid, RM24,300 of it bought units, and RM12,000 of units went on 10 years of cover. That leaves well under half of the premiums in the fund, before any fund gain or loss. Nothing went missing: most of the difference paid for protection you had every single month. Read an ILP statement as an insurance policy with a fund attached, not as a savings account.
Surrendering early locks this in. Great Eastern's SmartProtect You page says an early termination involves high costs and the withdrawal value may be less than the total premiums paid. If the real issue is more riders than you need, or a fund that does not suit you, there are better fixes, covered below.
Can I stop paying for a while? Premium holiday and your medical card
Yes. An ILP lets you take a premium holiday: you stop paying and the policy carries on as long as the fund can pay the charges. The SmartProtect You brochure says you may stop paying premiums and still enjoy protection as long as the total investment value can pay the insurance charges, policy fee and rider charges, but the policy can lapse once those charges exceed the value of the units. Bank Negara treats a premium holiday as something you can do without telling the insurer first (paragraph 16.4), so nobody has to warn you on the day you skip a payment.
| During a premium holiday | What happens |
|---|---|
| Basic life cover | Continues, paid from your units every month |
| Medical card and other unit-deducting riders | Continue, also paid from your units every month |
| Premium-paying riders | The insurer must get your written consent before deducting their charges from the fund (paragraph 14.11) |
| Your annual statement | Must remind you of the automatic deductions and what they can lead to; if cover will not last, it must give the reasons and the top-up needed (paragraph 16.7) |
| No-Lapse Guarantee, if any | Usually lost: on SmartProtect You it needs every premium in the first 3 years paid on time |
| When the units run out | The policy lapses, and every rider ends with it |
Will a premium holiday affect my medical card?
Not on the day you stop, but it shortens how long the medical card can last. A medical rider on an ILP is normally a unit-deducting rider, so its charges keep coming out of the fund while nothing goes in. Medical charges also rise with age and with repricing, and Great Eastern's SmartProtect Junior disclosure sheet lets the premium be varied on the policy anniversary, with 30 days' notice, when its medical riders' charges are revised. If the fund runs dry, the policy lapses and the medical card ends with it, and a new medical card means new underwriting and new waiting periods. My guide on ILP and standalone medical cards goes deeper into this.
A short break, for example between jobs, is usually manageable when the fund is healthy. Before a long one, ask for the sustainability projection, and restart premiums or top up as soon as you can. If premiums are already overdue, the grace period, lapse and reinstatement rules are in my guide on what happens when you stop paying.
Can I withdraw money from my ILP? Will it reduce my cover?
Most ILPs allow a partial withdrawal: you cash in some units and the policy carries on. It is your money, but it is also the money that pays your insurance charges, so Bank Negara treats a withdrawal as an action that needs a sustainability test before it goes through (paragraphs 16.2 and 16.3). At Great Eastern, the withdrawal and surrender form (PSF33) sets out how it works:
- Units are cancelled at the price on the date Great Eastern receives the completed form, with cut-off times of 11:00am for foreign funds and 3:00pm for local funds; later forms are processed the next business day.
- The expected outcome of the sustainability test is given within 14 days of a complete application, and an IL Sustainability Consent Letter is required.
- The basic sum assured, and any living assurance (critical illness) sum assured, may or may not be reduced, depending on your policy's conditions.
- Great Eastern can reject a request below its minimum amount.
- On SmartProtect You, a withdrawal in the first 3 policy years ends the No-Lapse Guarantee.
| Way to get money out | Cover afterwards | Watch out for |
|---|---|---|
| Partial withdrawal | Continues, but the sum assured may be reduced | Fewer units to pay future charges, so the policy can lapse sooner |
| Policy loan | Not available | Great Eastern's policy loan page says loans are not available for investment-linked policies |
| Full surrender | Ends | You receive the units' value less any charges; a new policy later may cost more, with new waiting periods and exclusions |
Bank Negara does not allow a sales illustration to show partial withdrawals, so any withdrawal you take was never part of the plan you were shown. If you need cash, ask what the withdrawal does to sustainability first, take the smallest amount that solves the problem, and plan to rebuild the fund with top-ups later if you can.
My fund is losing money or my charges went up: how do I keep the policy from lapsing early?
First, a fund that is down on paper has not cost you your cover. Your units are worth less today; what matters is whether the fund can still pay the charges until the end of the term. Bank Negara requires your insurer to test that at least once a year and print the result in your annual statement (paragraphs 16.2 and 16.6). At Great Eastern, a policy whose value is running low also gets an Insufficient Investment Value Notification, which you can open in e-Connect under My Document; it shows an estimated lapse period and recommended options, according to Great Eastern's investment-linked policy guides page.
Your options, side by side
| Option | What it does | Good to know |
|---|---|---|
| Switch funds | Moves existing units to another fund | At Great Eastern, at least RM1,000 per fund (or all units if less), at the price on the day the form is received; a switch does not undo a past fall |
| Change the apportionment | Sends future premiums to a different fund mix | Same PSF06A form; useful when your risk appetite has changed |
| Top up | Adds units | At least 95% is allocated; Great Eastern's disclosure sheet advises paying extra money as top-ups to raise the investment value |
| Raise the regular premium | More units every month | The first fix listed by Bank Negara's illustration template and LIAM's owner guide when cover will not last |
| Reduce cover or remove riders | Lowers the monthly charges | Cover you drop may be hard to get back later |
| Shorten the coverage term | Fewer years of charges to fund | One of the alternatives in paragraph 16.9 |
| Let the fund absorb higher charges | Nothing changes now | The insurer must warn you the fund will run down faster (paragraph 16.10) |
Fund switch and top-up forms are on Great Eastern's update investment-linked plan page, or I can prepare them with you. Which fund suits you depends on your age, how long the policy must last and how much movement you can live with. I can explain each fund's objective and charges, but nobody can promise you a return.
Five habits that keep an ILP going
- Read the sustainability line in every annual statement, and act on the first warning, not the third.
- Pay premiums on time, especially in the first 3 years if your plan has a No-Lapse Guarantee.
- When you add a rider, raise the premium to match.
- When a charge or repricing letter arrives, compare topping up with trimming riders before the anniversary date.
- If a premium waiver rider is paying your premium, check whether the waived amount still covers the revised charges: Great Eastern's brochure says you may need to top up the difference.
This guide is general information, not financial or legal advice. Your policy contract and your insurer's letters decide the exact terms.
Not sure where your ILP stands? What to do next, with my help
An ILP suits people who need life, critical illness and medical cover in one policy and are willing to look at it once a year. Trouble usually starts when nobody looks. If you are holding a statement you do not fully understand, WhatsApp me:
- a photo of your latest annual statement, or the Insufficient Investment Value Notification if you received one;
- a list of your riders and any charge increase letters from the past year;
- what you want: keep the medical card, lower the premium, take some cash out, or simply understand the numbers.
I will show you where your premium is going, how long the cover is expected to last, and what each option (top-up, fewer riders, fund switch, premium change) does to it. If your policy is fine as it is, I will tell you that too. Policies bought elsewhere are welcome: I can read them with you and tell you what to ask your insurer. You can also start with a free policy review.
I am a Great Eastern agent based in Seri Kembangan, helping families across Kuala Lumpur and Selangor in Mandarin, English or Cantonese, with no hard selling.