9 December 2024

Summary

The transcript discusses the differences between insurance products and unit trusts, explaining that while insurance companies tie certain products with unit trusts, they do not sell unit trusts directly. The focus is on the risks and benefits associated with different investment options, such as equity and bond funds, and how the policyholder bears the risk of market performance. The speaker highlights the flexibility in choosing funds but also emphasizes that the returns are not guaranteed, unlike the false perception often portrayed on social media. It concludes with the limitations of unit trusts compared to insurance-linked products.

Takeaways

• 😀 Unit trusts are purely investment products, with returns depending entirely on market performance, and do not offer insurance protection like death benefits.
• 😀 Insurance companies do not sell unit trusts as investment products directly, but may offer insurance products that combine insurance with investments like unit trusts.
• 😀 Death benefits in insurance policies tied to unit trusts depend on the performance of the investment. If the market is doing poorly, the death benefit can be low.
• 😀 The policyholder bears the investment risk in insurance products linked to unit trusts. The company is not responsible for market fluctuations or the investment's performance.
• 😀 Participating insurance products allow policyholders to potentially benefit from the company's profits, while non-participating products do not offer such benefits.
• 😀 Customers have the freedom to choose which investment fund they want to be tied to (e.g., equity, bond, or mixed funds) in certain insurance policies.
• 😀 Premium rates in insurance policies tied to unit trusts vary depending on the type of investment selected. Riskier investments like equity may result in lower premiums, but also come with higher risk.
• 😀 Unit trusts are typically better than investment-linked insurance policies (ILPs) for purely investment purposes, as they do not have the additional insurance components.
• 😀 ILPs combine protection (death benefits) with investment, but the investment's performance impacts the death benefit, meaning it is not guaranteed.
• 😀 Insurance products with investment components like ILPs provide protection (death or health benefits) while allowing policyholders to participate in market-based returns, unlike standalone unit trusts.

Q & A

What is the primary difference between unit trusts and insurance products?

Unit trusts are investment funds where the value fluctuates based on the market, while insurance products linked to unit trusts provide a death benefit that depends on the performance of the underlying investment, but are not guaranteed returns.

Why can't an insurance company guarantee the return of an investment linked to a unit trust?

The return of a unit trust-linked insurance product depends on market performance, and the insurance company cannot control or predict market outcomes. The value is determined by how well the underlying investment performs.

What happens to the death benefit in an insurance-linked unit trust product if the market performs poorly?

If the market performs poorly, the death benefit is likely to be lower because the value of the unit trust investments decreases, which directly impacts the payout.

Who bears the investment risk in insurance products linked to unit trusts?

The policyholder bears the investment risk. The insurance company only pays out based on the current market value of the unit trust at the time of the claim, and does not guarantee any specific return.

Can a customer choose which funds their insurance product is linked to?

Yes, the policyholder has the freedom to choose between different funds, such as equity, bond, or mixed funds, depending on their risk tolerance and investment preferences.

Why is the premium lower for policies linked to equity funds compared to bond funds?

Premiums are lower for equity-linked policies because equity funds have the potential for higher returns, but they also come with higher risk. Bond funds are more stable but typically offer lower returns, requiring higher premiums to sustain the product.

What is the main disadvantage of unit trust products compared to insurance-linked products?

The main disadvantage of pure unit trust products is that they do not provide any life insurance coverage or guaranteed death benefits, unlike insurance products linked to unit trusts that offer some level of protection.

Why is it incorrect to buy unit trust directly from an insurance company?

Insurance companies do not sell unit trust products directly. What they offer are insurance products that are linked to unit trusts, where the death benefit is tied to the market performance of the underlying investments.

How does the market performance affect the value of an insurance product tied to a unit trust?

The value of an insurance product tied to a unit trust depends entirely on the market performance. If the market is performing well, the value of the investment and the death benefit increase; if the market performs poorly, the value decreases.

What is the main reason why some policyholders might choose a bond fund over an equity fund?

Policyholders might choose a bond fund over an equity fund if they are risk-averse and prefer a more stable investment, even though it comes with higher premiums and lower return potential. The bond fund is generally less volatile than equity.