Investment-linked policy sustainability in Malaysia: will your ILP last as long as you expect?

Policy Term and Projected Sustainability Are Different

The policy term or coverage term is the contract-defined period during which coverage can run, such as 25 years or to age 70, 80 or 100. It describes the product’s contractual boundary, subject to its conditions.

Projected or estimated sustainability uses information as at a particular date to estimate how long the account value may support coverage after premiums, fund movements, withdrawals and charges. It is a projection, not a fixed expiry date.

Document example: two ages on one policy

A wholly synthetic statement says:

• original coverage term: to age 80;
• latest projected sustainability: to age 72;
• assumptions: RM420 monthly premium continues, no withdrawals, benefits unchanged, and the stated fund-return assumption applies.

The careful reading is:

• age 80 describes the original contractual term;
• age 72 describes the current projected funding period under those assumptions;
• the actual outcome after age 72 still depends on later premiums, fund performance, charges, policy changes and the contract’s lapse terms; and
• another projection can later move earlier or later.

The statement alone does not prove a lapse at exactly age 72 or that the current premium is enough to age 80. The next step is to request a current servicing projection and its assumptions.

How an ILP Uses Premiums, Funds and Account Value

An ILP combines insurance protection with an investment-linked unit account. Product structures differ, but the general money flow is:

1. You pay a premium.
2. Under the contract’s allocation and charge structure, some or all of it may buy investment-linked fund units.
3. Insurance charges, policy fees, fund-management charges, rider charges and other applicable amounts may be taken from the premium, account or by cancelling units.
4. The value of the remaining units moves with the fund price.
5. Later premiums, top-ups, withdrawals, charges, fund performance and policy changes continue to affect the account value.

Sustainability therefore is not determined only by “how much I have paid.” A useful teaching model is:

> Current account value + future assumed inflows +/− fund movements − future charges and withdrawals

This is not a substitute for the insurer’s actuarial projection. It simply shows the directions of cash flow.

Worked example: an RM300 premium does not all remain in the account

Assume a wholly synthetic ILP in one month:

• premium paid: RM300;
• under the fictional contract, RM270 buys units;
• insurance and policy-related charges: RM35;
• before fund movements, the account increases by about RM235.

The arithmetic is RM270 − RM35 = RM235.

Years later, if the fictional monthly charges become RM210 while the amount buying units stays at RM270, only RM60 is added before fund movements. If no premium is paid that month, RM210 may still be deducted under the contract, plus or minus fund movement.

These are teaching figures, not any insurer’s allocation or charge scale. Check the sales illustration, contract, annual statement and latest charge notice.

What Is Guaranteed, Non-guaranteed or Conditional

Sorting policy information into three columns is more useful than focusing on one age.

Contract example: a five-year guarantee is not a lifetime guarantee

One current product version states a five-year guaranteed-coverage feature, but only if premiums and revised premiums are paid on time, no premium holiday is used, and there is no withdrawal or policy change that increases charges or reduces present or future account value.[7]

The word “guaranteed” must therefore be read with its conditions. It does not mean:

• that the policy must lapse after five years;
• that every ILP has the same guarantee; or
• that paying premiums always ensures sustainability to age 100.

What to Read in an Annual Statement and Updated Projection

The current Investment-linked Business policy document issued by Bank Negara Malaysia (BNM) contains requirements for ILP sustainability testing and disclosure.[1] Insurer document names, layouts and access channels can still differ. You may see:

• Annual Statement;
• Investment-linked Statement;
• Sustainability Statement;
• Sustainability Projection;
• Servicing Illustration or Servicing Projection; or
• a premium or insurance-charge adjustment notice.

Great Eastern’s current e-Statement information is one practical example: its portal provides ILP annual statements and IL sustainability statements.[9] Other insurers need not use the same labels.

Check these eight fields

1. Statement or projection date.
2. Current account value and fund holdings.
3. Current regular premium and scheduled top-up.
4. Original coverage term or maturity date.
5. Latest projected sustainability age or date.
6. Assumed return, payment, withdrawal and benefit behaviour.
7. Charges deducted and future applicable charges.
8. The options shown and a written new projection for each option.

Statement scenario: the old illustration still matters, but may not reflect today

Assume Mei Ling bought a policy in 2018. The original illustration used the information and illustrated assumptions available then. Her 2026 annual statement now includes actual payments, withdrawals, unit value and the applicable charges to date.

She should not throw away the 2018 illustration because it records the original design and disclosure. But the 2026 documents are normally more relevant to today’s sustainability position. The useful comparison is to put both side by side and identify what changed.

Why Projected Sustainability Can Change

A changed projection can have more than one driver.

1. Actual fund performance differs from the assumption

Unit prices can rise or fall. Past good performance does not guarantee the future, and one market decline does not by itself fix the eventual outcome.

Example: A fictional account starts at RM40,000. A net fund movement of −8% reduces it by about RM3,200 before premiums and charges; +8% increases it by about RM3,200. A real policy also has monthly inflows and deductions, so this shortcut cannot predict a lapse age.

2. Insurance charges rise with age or are revised by notice

Some insurance charges rise as the insured person gets older. A contract may also reserve a right to revise charges under stated conditions. When charges rise, the same premium can leave fewer units invested.

Example: A fictional policy receives RM480 monthly. At age 45, total monthly deductions are RM120. At age 60, the fictional deductions are RM360. Even with the same premium, the amount left before fund movement is much smaller. The real charge scale and revision right must come from the contract and notice.

3. Missed premiums, premium holidays or reduced scheduled top-ups

Stopping payments does not necessarily cause an immediate lapse, but charges may continue to be deducted. Coverage may continue while account value is sufficient, then lapse under the contract when it is not.

Example: A fictional policy takes a six-month premium holiday while RM180 is deducted monthly. Before fund movement, the account is about RM1,080 lower. A premium holiday is not a cost-free holiday.

4. Withdrawals or partial surrenders

A withdrawal converts units to cash, leaving less value to meet future deductions.

Example: A fictional RM30,000 account has an RM8,000 withdrawal. About RM22,000 remains before later charges and fund movements. The withdrawal may solve a short-term cash need while shortening future support.

5. Benefits or riders increase

Adding a medical, critical-illness or other rider can increase future deductions. The protection may also be valuable, so the decision cannot be reduced to “the charge went up.” Compare protection need and sustainability together.

6. The projection date and assumptions are updated

A current projection uses updated account value, payment history, charges and economic assumptions. Zurich’s current insurance-charge revision FAQ, for example, lists assumptions such as premiums being paid on time, no future withdrawals, no policy or fund-selection change, and says value may deplete earlier or later than estimated.[11]

Your Options and Their Trade-offs

There is no single response that suits every shorter projection.

Surrender or replacement is not the default response to a shorter projection. Increasing the premium is not automatically right either. If it would compromise essentials, emergency savings or unavoidable obligations, first review affordability. The live YFD guides on how much to spend on insurance and the six steps of financial planning provide that wider context.

Next Step: Start With a Document Review

Do these four things:

1. Find the latest annual statement.
2. Ask the insurer for a current sustainability or servicing projection.
3. Mark the date, account value, charges, premium, benefits, withdrawals and assumptions.
4. Request a written side-by-side comparison of “no change,” different top-up or regular-premium amounts, and any rider review.

If the current premium is already affecting essentials, emergency savings or unavoidable obligations, pause for an affordability review. The YFD guide on how much to spend on insurance is a useful next read.

If several policies interact, the documents are hard to reconcile, or you want an independent trade-off review, consider a document-first consultation. You do not have to agree to buy, surrender, replace or increase any product before the review.