INDONESIANS are generally reluctant to make an insurance plan, or simply ignore the significance of such planning. Tiarma Hutabarat is no exception. However, when an insurance agent visited her workplace to promote unit-linked products, Tiarma, who runs a catering business, was interested. The agent, who works for a company that has been in operation in Indonesia for a decade, made interesting promises as he offered not just insurance but also investment. "If I invest about Rp 5 million per month for two years, when I am 60 years old, my investment will be about Rp 1 billion" Tiarma said.
Indeed, unit-linked products are insurance coupled with investment. If you have invested in a unit-linked product, you can enjoy insurance protection and investment. The insurance product offered may be health insurance or life insurance, but usually it is marketed to the public as a more attractive package, for example coupled with a savings scheme or educational insurance.
Just like ordinary insurance, a customer of unit-linked insurance pays a premium for a certain period of time, usually monthly. The difference is that a unit-linked premium has two portions: the protection portion and the investment portion. The protection premium has the same function as the premium in ordinary insurance, while the investment portion will be handled by an investment manager.
A customer of unit-linked investment is like a mutual fund customer. In both, a customer decides on what the money will be invested in. The choices available are equity, a fixed income, the money market or a combination of the three. All choices have more or less the same risk, depending on the type of investment chosen.
A unit-linked product is not the prima donna of insurance products. Understandably, a unit-linked product has dual value: investment and protection. When unit-linked products were first introduced on the market in 1998, there were only three players. Today, these products are offered by nearly all life insurance companies, such as AIG Life, Prudential Life Assurance, Manulife Indonesia, Sun Life Financial Indonesia, Allianz Life Indonesia, Sequis Life, Jiwasraya, MAA Life, AIA Indonesia, Astra CMG Life and Axa Mandiri Financial Services.
In the eyes of financial observer Goei Siau Hong, the prospects of unit-linked products are bright even though many Indonesians are more inclined to invest in time deposits. He acknowledged that the risk of a time deposit was low, but then so is the return. In the long run, he believes Indonesia will follow the trend in advanced countries, where people have become oriented toward long-term investment, which is possible with a unit-linked product.
According to Goei, it is not easy for retail investors to invest in products that have a long-term commitment, such as shares and bonds. On the other hand, products such as unit-linked products and mutual funds, which have an investment composition of a number of long-term products, are ideal. "Besides, these products are affordable and are managed by a fund manager," he said.
However, before deciding to invest in a unit-linked product, one should consider the opinion of Taufik Gumulya, a financial planner at TGRM Financial Planning Services. In his opinion, a unit-linked product is very practical as it facilitates both customers and prospective customers. In the case of a unit-linked product, a customer does not need to go to the trouble of visiting two companies -- an insurance company and a mutual investment management company or an investment manager -- because a unit-linked product is a combination of protection and investment.
Even a customer with a thin wallet can easily enjoy protection and make an investment because the investment may be made in a relatively small amount of money. Many unit-linked products have an investment value of only Rp 100,000 per month or even less. This product is also liquid because, as far as the fund is sufficient, the investment can be withdrawn by the customer at any time. Even after a certain period of time, this investment can be used for the payment of the basic premium so that the customer may enjoy a premium leave.
Don't be mistaken, though. As he can enjoy all the facilities referred to above, a prospective customer placing his money in a unit-linked product bears the costs not found with an investment in mutual funds, such as the insurance cost (in accordance with the age and the sex of the customer), administrative costs and investment management costs. In general, the company will clearly state the amount of administrative costs included in the premium. The amount varies from one company to another.
What about the insurance risk? Some insurance companies offer life insurance, the premium of which is charged every month to the customer's unit. Other companies cover insurance against accidents or even add health insurance. The greater the variety of risks, the bigger the portion of the premium used to pay the insurance risk.
How about the premium payment, then? There are two ways to pay the premium. First, payment as a lump sum at the beginning of a period. Second, payment made periodically every year for a certain period of time. Every product that an insurance company offers has unique characteristics. Therefore, carefully study the product that is offered to you. And the saying goes, test before buying. (Burhanuddin Abe)
The Jakarta Post, March 23, 2008