For many Malaysians, insurance is often seen as a form of investment — a way to grow wealth while staying protected. Yet, this perception blurs an important distinction. Insurance and investment serve very different purposes. While investment aims to grow capital, insurance’s primary goal is protection — providing financial security in times of uncertainty. However, the rise of Investment-Linked Policies (ILPs) shows that the line between the two is increasingly intertwined.
Insurance Is Protection, Not For Profit
At its core, insurance is a risk management tool. Policyholders pay premiums to transfer the risk of financial loss — such as death, disability, or critical illness — to an insurer. The value lies in protection, not in potential returns. This distinction is often misunderstood, especially when policyholders expect high payouts or “profits” from their insurance plans.
In Malaysia, this misunderstanding partly explains why the country’s insurance penetration rate remains relatively low. As of 2023, total insurance penetration stood at about 4.8% of GDP, below the global average of 6.3% and significantly behind Singapore’s 7.6%. Many Malaysians either remain uninsured or are underinsured, reflecting limited awareness of the true purpose of insurance and the long-term value of protection.
Why Investment-Linked Policies Exist
Investment-Linked Policies (ILPs) emerged as a response to changing consumer behaviour. Today’s consumers are financially aware, digitally savvy, and increasingly expect more flexibility and transparency from financial products. Rather than choosing between protection and investment, they want both.
ILPs address this demand by combining life insurance coverage with investment exposure. A portion of the premium goes toward insurance protection, while the remainder is invested in professionally managed funds — often unit trust portfolios. Over time, policyholders can adjust their coverage and investment allocation based on financial goals, risk appetite, or market conditions.
From an industry standpoint, ILPs also serve as a key growth driver. With conventional life insurance showing slower annual growth of 2.5%, compared to 13.3% in the rapidly expanding takaful market, insurers are introducing more innovative hybrid solutions. ILPs allow insurers to appeal to younger Malaysians who are new to financial planning, helping them start small with both protection and wealth accumulation.
How ILPs Help Close Malaysia’s Protection Gap
Malaysia’s large underinsured population presents both a challenge and an opportunity. According to the Malaysian Takaful Association, nearly half of Malaysians still lack adequate financial protection, especially among the B40 and M40 income groups. ILPs can help close this protection gap by making coverage more accessible and flexible.
By linking insurance with investment, ILPs appeal to those who might otherwise hesitate to purchase pure protection plans. Policyholders are encouraged to view insurance not merely as a cost, but as a financial tool that also builds long-term value. In addition, ILPs create an opportunity for financial advisers to engage clients in broader wealth planning conversations — covering risk management, savings, and retirement readiness.
Regulation and Professional Advice Matter
Under Malaysia’s regulatory framework, insurance and investment activities are governed by different authorities. Bank Negara Malaysia (BNM) oversees insurance and takaful products, while the Securities Commission (SC) regulates capital market activities such as unit trusts and securities.
For this reason, financial professionals who wish to offer comprehensive advice often hold multiple licences — such as the Financial Adviser Representative (FAR) under BNM and the Capital Market Services Licence (CMSL) under the SC. This dual licensing ensures that clients receive holistic and unbiased advice that balances protection with investment needs.
ILPs, therefore, highlight the importance of financial literacy and professional guidance. Consumers should understand that while ILPs contain an investment element, they remain insurance-first products — designed primarily for protection.
Looking Ahead
As Malaysia moves toward greater financial inclusion, Investment-Linked Policies play an important role in bridging the gap between protection and investment. Supported by initiatives under Bank Negara’s Financial Sector Blueprint 2022–2026, and the industry’s digital transformation through insurtech and online takaful platforms, ILPs are becoming more transparent, cost-effective, and accessible.
Ultimately, the growing popularity of ILPs reflects an evolution in how Malaysians approach financial planning. Insurance is no longer viewed purely as a safety net, but as part of a broader wealth management journey. Yet, it is crucial to remember that the investment component should complement — not replace — the core purpose of insurance: to protect what matters most.
Disclaimer
The information contained herein does not constitute an offer, invitation, or solicitation to invest in any product or service offered by Phillip Capital Management Sdn Bhd (“PCM”). No part of this document may be reproduced or circulated without prior written consent from PCM. This is not a unit trust or collective investment scheme and is not an obligation of, deposit in, or guaranteed by PCM. All investments carry risks, including the potential loss of principal.
Performance figures presented may reflect model portfolios and may differ from actual client accounts’ performance. Variations in individual clients’ portfolios against model portfolios and between one client’s portfolio to another can arise due to multiple factors, including (but not limited to) higher relative brokerage costs for smaller portfolios, timing of capital injections or withdrawals, timing of purchases and sales, and mandate change (e.g., Shariah vs. conventional). These differences may impact overall performance.
Past performance is not necessarily indicative of future returns. The value of investments may rise or fall, and returns are not guaranteed. PCM has not considered your investment objectives, financial situation, or particular needs. You are advised to consult a licensed financial adviser before making any investment decisions.
While all reasonable care has been taken to ensure the accuracy and completeness of the information contained herein, no representation or warranty is made, and no liability is accepted for any loss arising directly or indirectly from reliance on this material. This publication has not been reviewed by the Securities Commission Malaysia.
