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Is Adding “Investment” to a Medical Insurance Plan Really a Good Idea?
Is Adding “Investment” to a Medical Insurance Plan Really a Good Idea?
At first glance, a medical plan built on an Investment-Linked (IL) policy sounds attractive. The word investment easily gives the impression that your medical insurance can also help grow your money. But this is where many people are misled.
An Investment-Linked medical plan is not designed to build wealth. It is a mechanism insurers use to pay for the Cost of Insurance and sustain your medical coverage over a longer period of time.
Here are three key words to understand: Pay, Cost of Insurance, Sustain.
When you pay your premium, the insurer first uses it to buy units in an IL fund. This does not mean you have made a profit. At a fixed time every month, some of these units are sold to pay the Cost of Insurance (COI) for your medical rider. COI increases as you age because medical risks and costs rise.
Any units left after paying COI are known as Cash Value (CV). This is the part many people think is savings or investment return. While it is true that CV can be taken back if the policy is surrendered or do partial withdraw, it is important to understand that CV is not meant to grow forever. As COI increases over time, more units are sold, CV growth slows down, and eventually CV can start to decline.
When CV is fully used up, the policyholder must either top up premium, reduce benefits, or risk the policy lapsing. This is also why insurers often mention a “sustainability age” — it simply means the age at which the CV is projected to run out if nothing changes.
So what is the real purpose of Cash Value in an IL medical plan?
It exists mainly to support and sustain the policy, not to grow your money.
This leads to a very simple mindset shift. Investment is meant to grow what you put in. Insurance is meant to protect and is not designed for taking back. When both are mixed together, investment growth becomes inefficient and expectations often get disappointed.
If your goal is to grow money, it is better to use the right tools for that purpose. Growth-oriented investors may consider instruments such as unit trusts or shares, while those who prefer stability may look at EPF, insurance endowment plans, fixed deposits, or gold. Medical insurance should be allowed to focus on what it does best—protecting you when medical costs strike.
When protection and investment are clearly separated, your financial planning becomes simpler, clearer, and far more sustainable in the long run.
So, what type of insurance policy can help grow my wealth?
Insurance endowment plans are designed for long-term savings, usually with a fixed contribution period and maturity of 20 or 30 years. Their main goal is capital preservation with steady growth, not aggressive investing. Some plans offer guaranteed returns, while others include non-guaranteed bonuses. If you choose a Universal type plan, returns may be higher but come with more risk, which is why these plans usually include minimum capital protection to ensure you do not lose all your money.
Many people are confused by terms like “6% Guaranteed Annual Return”. In most cases, this does NOT mean 6% compounded on total savings. It usually refers to a fixed percentage based on the first year’s premium only.
Example:
Annual premium RM100,000 for 5 years, with 6% guaranteed return.
This means RM6,000 per year is guaranteed, even though your total savings increase each year. The return amount stays the same and does not compound.
Key Takeaway:
Insurance is to protect wealth not grow your money
Investment is to grow money, but always understand how returns are calculated, not just the percentage shown.
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