Personal Finance Term
ILP
Investment-Linked Policy
An investment-linked policy (ILP, or investment-linked takaful certificate) is a life insurance plan where each premium is split: part pays for the insurance cover, part is allocated to unit funds you pick. It is sold as a regular premium plan (paid over a number of years) or a single premium plan (one payment at the start). It is not the same as a savings account: the unit value moves with the funds, and the policy can lapse if the account value runs out.
Bank Negara Malaysia sets the rules in its policy document on Investment-linked Business (issued 13 February 2023). It defines the Minimum Allocation Rate (MAR) as the minimum share of your premium that goes into the unit funds before any charges are taken. For a regular premium plan with a premium-paying term of 3 years or more, the MAR in the document's Table 1 is 60% of the annual premium in years 1 to 3, 80% in years 4 to 6, 95% in years 7 to 10 and 100% from year 11. So in the early years the rules allow less than the full premium to reach your funds.
Out of the units, the insurer then deducts the charges for the insurance cover, which can be reviewable, plus fund and policy charges. If those charges rise faster than the fund grows, the account value can reach zero and the cover ends. BNM requires insurers to disclose whether the cover is expected to last and, where it is not, what top-up would restore it. The same document requires a product illustration based on the premium you actually subscribe to, and a Fund Fact Sheet for each fund, to be given to you at the point of sale. Ask for both before you sign, and read the charges page first.
This entry explains how the product works; it is not advice to buy or avoid one.