Purchase insurance products should be intended for the purpose of obtaining protection or protection from events that are not desirable. Even though insurance products taken that kind of unit-linked (life insurance linked to investment), the main intention remains protection, not an investment.
Wrong to unit-linked intended for investment? It's not about right and wrong, but if the purpose of investment, there are many other instruments that can provide greater benefits at lower costs. For example, bonds, mutual funds, and stocks. If you do not understand about bonds, mutual funds, and stocks, or do not have time to learn it, you could invest in a traditional instrument that is simpler and easier to understand, such as deposits, gold and property.
Keep in mind also, unit-linked investments was actually exactly the same as mutual funds. Mutual funds are a collection of public funds managed by an investment manager, and channeled into investment instruments such as deposits, bonds and shares, or a mixture of all three (depending on the type reksadananya). Mutual fund investments involve risks, and investment unit-link is the same. The difference is, the cost structure of the fund is much lower than the cost structure of the unit-linked, so that the expected returns could be higher.
Differences Insurance with Investment
Insurance is not only different from the investment, but they do have properties opposite. Taken together, the increase that one would reduce the other. Examples in unit-linked products, if money is insured enlarged, insurance costs (tabarru) will be greater so that an automatic investment value becomes smaller. Conversely, if a customer wants a greater investment value, the insurance sum assured should be minimized.
In summary, differences in insurance and investment are as follows.
Insurance protects its purpose so as not to run out of money, the investment objective to develop so that adds a lot of money.
Suppose you have savings of 100 million, with health insurance, 100 million was unnecessary unused if you experience illness or accident. While the investment, for example, you have a savings of 100 million, you think must be channeled to where the money so that in 5 years to 200 million.
The insurance in case of undesirable things that can happen at any time, the investment in preparation for the things you want in the future.
Undesirable things that can happen at anytime for example hospitalization, critical illness, accident, disability, and death. Whenever it may be next year, maybe next month, or maybe even tomorrow, we'll never know. The arrival of these events did not look at whether we have money or not. For that we need insurance so that the financial impact can be mitigated or minimized.
While things are desirable in the future eg children's education, pilgrimage, and pensions. All were equally need funding, but the timing can be known or planned so that everyone can prepare it since long ago. How to prepare it is the investment (if the period is relatively long) or save (if the period is short, less than one year).
Short-term insurance, long-term investment.
The short-term insurance because the value of the insurance benefits will decrease over time. Suppose you have a life insurance money 1 billion, the current value may seem large, but the longer the value gets smaller as the inflation factor. Therefore, every certain period, for example, every five years, the insurance money should be improved (upgraded).
While the long-term investment because investment gains will get bigger over time. The longer the investment period, the resulting gain will be even greater.
The insurance does not take to be a great investment it takes to be great.
This is another difference that should be realized. Many people refused insurance because the money saved or invested passable only. And if disaster comes in the near future, certainly not a lot of savings and are not a lot of it could be gone in an instant everything. With insurance, in a short time have available a large amount of funds to mitigate the impact of disasters that could occur at any time, since the insurance was put on the principle of sharing risk among a number of people.
The insurance joint strength, the strength of the investment itself.
To anticipate the arrival of unexpected things, which is more effective: do it alone or do it together?
Insurance, both conventional and Islamic, can accumulate large funds quickly because there are many people involved in it as a participant. Each participant gave up the money used to pay the claims of the other participants, and do not mind if he himself did not earn money claims (meaning not of a disaster).
While investment is purely his own money follows its development. Value of investments in unit-linked products are the property of each participant, not mixed at all with money from other participants. In insurance, called "insurance education" was, funds received by participants stages entirely derived from his own money, no money at all from the other participants.
The insurance costs and the cost of it was charred, it means developing investment funds in order to grow larger.
In financial planning, insurance was part of the costs as well as expenses for electricity and telephone. The name of cost, of course sunk alias not return. And instead, we gain protection. Whether the disaster occurred or not, we still obtain protection. Protection can not be seen or touched physically, but can be felt in the form of tranquility.
While investment not a cost, but the way we develop money so it becomes bigger than before. In no investment costs, but as far as possible look for investment instruments most minimal cost, so that the result is more optimal.
Unit-link Cost Differences with Mutual Funds
Discuss insurance in connection with the investment, inevitably brings us to the discussion of unit-link. As mentioned above, unit-link should still intended for protection. As for investment, preferably through mutual funds due to the smaller cost structure.
Differences in cost structures in the unit-linked and mutual funds can be seen in the table below:
No Cost Component Unit-link Mutual Funds
1 There is a monthly administration fee, the range of 20-40 thousand per month None
2 There Acquisition costs and enormous None
3 insurance fee (tabarru) There is a very large and No
4 The cost of top up (deposit, purchase) There is, between 2-5% Ada, between 0-3%
5 withdrawal fee There is generally no, approximately 1%
6 investment management fee There, about 1-2% per year There, about 1-2% per year
7 custodian bank fee None There, about 0.2 to 0.25% per year
8 The cost of transfer of funds (switching) generally does not exist, or if there are only more than 4 times swicthing a year, with around 1%. There, between 0-1%
9 Costs VAT There, 20% of the profits, were only charged in the first 3 years. Rare because unit-linked regular premium will not be profitable in the first 3 years. There, 20% of the profits, were only charged in the first 3 years
Explanation:
- The cost of acquisition is worn pieces of the base of the unit-linked premiums (excluding top up periodically), the amount varied, there were a total of 145% for 5 years (as in the unit-linked Allianz), there are more than 200%. The cost of acquisition is used mostly for commissions and bonuses agent, the rest to finance the issuance of the policy, medical check up, and paperwork. Because there is this acquisition costs of unit-linked investment value would be very low in the early years.
- Insurance costs (cost of insurance [COI] or tabarru in Takaful) is charged for each insurance benefits are taken. The amount depends on the age, sex, occupation, type of protection are taken, and the money coverage. Insurance costs charged during the period of protection (eg for basic life insurance means that the insured up to the age of 100 years or until death, whichever comes first). This makes the cost of insurance-linked investment unit is difficult to expect the benefits, because the cost of insurance or tabarru rose with age.
- Administrative costs, acquisition and insurance is not contained in mutual funds, therefore, all three of these costs should be viewed as the costs for the benefit of protection. If the purpose of your purchase is for a unit-linked insurance, staying seen whether these costs fairly decent (worth it) compared to the insurance benefits received. But if your goal is to buy unit-linked to investment gains, the existence of these costs would clearly undermine the balance of your investment.
- Cost of numbers 4 to 9 (top up / purchase, withdrawal, investment management, custodian bank, transfer funds / switching, and taxes) are the costs associated with the investment. If only to compare these costs, actually cost between unit-linked and mutual funds are not far adrift, but the overall cost of funds is lower. So, if you want to benefit investment, mutual funds advised more than unit-linked.
- Then what is the function value of investments in unit-link if it is not advisable to seek investment gains? Its main function is to protect the unit-link your policy so that protection remains in force. What does it mean? Keep in mind, the basic rule in unit-link is: protection policy remains in effect as long as sufficient funds available to pay for insurance and administration. This information is always expressed in any unit-linked proposal, although many customers are not aware of it. If funds are not sufficient to pay the cost of insurance and administration, the policy lapse (null, protective stops). The solution before that happens, the customer must perform manually top up (deposit some funds to the account of unit-link).
- Value of investments in unit-link also has other functions related to the main function at the top, which allows customers to take leave premiums. Leave premiums means stop depositing premiums, can be temporarily or permanently, and at the same time customers remain insured because insurance and administrative costs deducted from the balance each month. Leave this premium feature is unique to the unit-link, not found in other types of insurance products.
Why Not Pure Insurance?
If the unit-link insurance should still intended for protection, why not insurance in the pure protection insurance products only?
Of course permissible and fine. But the problem is not all that necessary protection available on the market in the form of pure insurance. The majority of insurance companies are now vying issuing unit-linked. They may have a traditional insurance product that is pure insurance (term-life), but not developed.
For health insurance to bear the hospitalization, the options are many both pure and unit-link, please to select which one. For life insurance bear the risk of death, the choice is too much either pure or unit-link, please to select which one. But for accident insurance, permanent disability, and critical illness, is generally only available as a rider in the life insurance and generally in unit-link, rarely stand alone.
So, if you want to get protection from accidents, permanent disability, and critical illness (and all people need this), the choice is limited to the unit-link. Even if the insurance is in non-unit-linked, yes it was, because it was not developed further by the insurance company, its features are not as good as those available in unit-link.
For example, for critical illness insurance that bears begin early stages (early stage), so far only available on the market as a rider in unit-linked life insurance. You will trouble themselves when looking for critical illness insurance early stage in the form of pure insurance of non-unit-linked. If you find the product, its features are not necessarily better than critical illness rider in unit-link, and not necessarily also cheaper.
In addition, unit-link has more value in the form of practicality is just one product for all insurance benefits. Instead of buying life insurance, health insurance, accident insurance, disability insurance and critical illness insurance separately, would not it be practical if it all together in one product?
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