What Is An Investment-Linked Plan?

(Last Updated 19th August 2026)

An investment-linked plan (ILP), sometimes called a unit-linked plan in older policy documents, is designed to provide life protection and grow an investment fund with the same premium. How much of your money goes to each side is set by the policy's structure, and that split determines your coverage and returns. Insurance Basics for Malaysians covers general terms like premiums, riders, and policy documents that come up throughout this guide.

What Makes ILP Different From Traditional Life Insurance Policies?

An ILP differs from a traditional whole-life or term-life policy in a few key areas:

How Your ILP Premium Is Split

Your premium splits the moment you pay it. Part of the premium buys units in your chosen fund, and the insurer keeps the remainder for upfront costs such as commissions, as outlined in the Minimum Allocation Rate below.

From there, your insurer then removes your monthly insurance coverage costs and policy fees by cancelling units in your fund. In a conventional plan, this coverage cost is known as the cost of insurance, whereas in a takaful plan it is called the tabarru' charge. These fees are not taken from your premium payment up front. The fund management charge is treated differently. It is applied against the fund's net asset value, reducing your unit price rather than cancelling units.

For example, imagine you pay RM300 a month. The table below shows how much of that goes to units, and how much the insurer keeps upfront for commission and setup costs:

*From year 11, if the insurer still needs to recover commission costs, it may deduct them from your unit fund instead.

This table only shows where your premium goes when you first pay it. It doesn't include your ongoing insurance charges, which are deducted each month separately from the units in your account, regardless of your allocation rate. Insurance charges never stop, and they get more expensive as you get older, which is covered next.

BNM limits the fund management charge to 1% of the fund's value for money-market or fixed-income funds, and 1.5% for other funds.

BNM also sets a rule for how much of your premium must go into units, known as the Minimum Allocation Rate, or MAR. It applies if you pay your premium regularly for three years or longer. The MAR is:

• Years 1 to 3: at least 60% goes to units
• Years 4 to 6: at least 80%
• Years 7 to 10: at least 95%
• Year 11 onwards: 100%

Insurers incur high upfront costs, such as agent commissions, and BNM doesn't allow them to deduct all of these from your premium immediately. Instead, they must spread the cost over several years.

From year 11 onwards, 100% of your premium goes towards units, though if the insurer still has commission costs left to recover, it's allowed to deduct them directly from your unit fund instead. This detail matters when you compare an old policy with a new one.

The cost of insurance is another important factor. For most ILPs, this cost increases each year because it's priced to your age. Some plans work differently, using a level structure instead, where the charge stays fixed for a period of time.

For example, imagine a 30-year-old and a 55-year-old with the same sum assured, the amount paid out if you die. These two people will pay very different insurance charges, even on the exact same fund. In your 30s, your fund can easily cover these charges, but by your 50s or 60s, the charges are much higher, and if your fund hasn't grown much, they may start to shrink it.

What You Can Do With The Plan While It’s Running

An ILP has one big advantage over a traditional policy. You can change it later, without needing to buy a new one each time. There are three main ways to do this:

• You can switch funds. Most insurers give you one free switch a year, then charge a small fee after that. This lets you take less risk, or move away from a fund that isn't doing well.
• You can add a rider, such as critical illness or hospitalisation cover, on top of your base plan, and remove it later if you no longer need it.
• You can withdraw funds from your account balance when you need them. A traditional whole life policy usually doesn't allow this. Instead, you'd need to take a policy loan, which means borrowing against your policy and repaying it with interest.

This flexibility has a downside that shows up as soon as you use it.

If you withdraw funds, the number of units in your account will be lower. Insurance charges continue to be deducted from those remaining units each month. A withdrawal may make your coverage end earlier unless you add more money to your account later.

Where ILP Flexibility May Become A Risk

An ILP can run out of money to pay for its own coverage. This can happen for a few reasons: your funds may not perform well, you may have made withdrawals, or your premium may have stayed the same even though your insurance charges rise every year as you get older.

If your account balance falls too low, it cannot cover the next charge, and your policy lapses. Your cover ends, even if you have never missed a payment.

To catch this early, BNM requires insurers to check every policy at least once a year (a sustainability test) and tell you the result in your annual statement. If the test finds a problem, the insurer must explain why your cover won't last the full term and tell you how much extra money (or a top-up) would fix it. You have other options too, such as reducing your sum assured or shortening your coverage term.

Read your annual statement every year. It is the clearest sign of whether your plan needs attention.

Your ILP's account value depends on the market, just like a unit trust, so there's no guaranteed return. Don't use an ILP to replace your emergency fund, and if you simply want to invest, cheaper options are available.

Why Some Agents Push ILPs

An ILP costs more than a similar term policy, and a higher premium means a bigger commission for the agent. Because of this, some agents recommend an ILP even when it isn't the best fit. A cheaper term policy, combined with separate investing, might suit the buyer better, but it pays the agent less.

Some agents pitch the ILP mainly as a way to save or grow money. They may not explain that a term policy plus separate investing could do the same job for less.

Before you buy, ask your agent for a Customer Fact Find, a needs-analysis form that should show why an ILP fits your situation better than the alternatives.

Is Your Money Protected If Your Insurer Fails?

Perbadanan Insurans Deposit Malaysia (PIDM) protects part of your ILP if your insurer fails. This protection is known as TIPS, short for the Takaful and Insurance Benefits Protection System.

Your death benefit is protected under TIPS, even if part of it is paid from your investment fund rather than just your insurance charges. Disability benefits are protected the same way.

TIPS protects up to RM500,000 per benefit type. Your death benefit and any disability benefit, for example, are each covered separately up to this amount, not shared from a single pool.

Healthcare benefits work differently. PIDM protects those at 100% of the amount payable, with no RM500,000 cap, so if you have a medical or hospitalisation rider on your ILP, claims under it aren't limited the way your death benefit is.

TIPS merges several policies into a single claim only when four elements match: the insurer, the policy owner, the insured individual, and the event type (e.g., death). When any of these elements differ, each policy keeps its own coverage.

For example, if your employer buys you a group life policy and you separately buy your own life policy from the same insurer, both are protected in full, since the policy owners are different. But if you personally hold two life policies with the same insurer covering your own life, TIPS combines them into one claim, capped at RM500,000 total rather than covering each policy's full amount separately.

Funds are not protected if you cancel the policy, if the policy matures, or if you take income from your investment fund. These payments are excluded because they come from your investment fund, not from your insurance coverage.

Your death benefit is a promise from your insurer. Your investment fund's value depends on the market, just like a unit trust, so PIDM protects the promise, not the market value of investments.

Traditional whole life and term policies work the same way for their death benefits, which are also protected under TIPS. The difference only matters for the maturity, surrender, and income parts of an ILP, since traditional policies don't have a separate investment fund.

What You Can Claim On Your Taxes

You can claim tax relief for the life insurance part of your ILP premium, up to RM3,000 a year, under the same category as other life policies.

You also get relief for your EPF contributions, up to RM4,000 a year. This covers both your mandatory contributions and any voluntary top-ups you make, including those through i-Saraan, a scheme for the self-employed, gig workers, and pensionable civil servants to save for retirement.

Voluntary EPF contributions count towards this RM4,000 first. Only once it's fully used does anything extra spill over into your RM3,000 life insurance relief, where it competes with your life insurance premium for the same limit. Together, most taxpayers can claim up to RM7,000 in total.

This same structure applies to pensionable public servants. Since the old rule letting them claim the full RM7,000 for life insurance alone no longer exists, a voluntary EPF contribution, through i-Saraan or a similar option, is now the only way for a pensionable public servant to reach the full RM7,000.

From Year of Assessment 2026, this relief covers more people: you can now claim for a policy that covers your child, not just yourself or your spouse.

The word "child" has a specific meaning for this relief, set out in subsections 49(5) and 49(6) of the Income Tax Act 1967 (inserted by Finance Act 2025). Your child must be legitimate, a stepchild, or legally adopted, and must also be one of the following:

• Under 18 years old and unmarried
• Unmarried, and in full-time education
• Unmarried, and in an apprenticeship
• Unmarried, and disabled

Only the life insurance part of your premium counts here. The part that buys units in your investment fund does not qualify separately.

If your ILP contains a medical or critical illness rider, that rider is handled in a different way. It falls under the education and medical insurance relief, which is capped at RM4,000.

That rider is consistently applied to this particular relief. It is not counted under the life insurance relief.

How much of the rider premium you can claim depends on how your insurer priced it. There are two cases:

• If the insurer billed the rider separately from your base policy, you can claim the full rider premium.
• If the insurer bundled the rider into one premium together with term life or personal accident cover, you can only claim 60% of that combined premium.

Your insurer's annual statement should show these amounts separately, which tells you what to claim under each relief category. If it doesn't, contact your insurer and ask for a separate tax relief statement.

Frequently Asked Questions

What happens if I stop paying my premium?

Missing a premium doesn't cancel your ILP right away. Your insurer still deducts your base insurance charges from your account by cancelling units in your fund, though it needs your written consent before also deducting any rider charges during a premium holiday.

A paused premium, sometimes called a premium holiday, draws down your fund faster than if you kept paying and can bring forward the point at which your policy lapses.

If cash flow is the issue, ask your insurer about reducing your premium or your sum assured instead of stopping outright. This keeps your policy going on a smaller commitment, rather than letting your account run to zero.

If I die, do I get the sum assured, the account value, or both?

This depends on how your plan is structured and varies more across products than most buyers expect. Some plans pay whichever is higher, the sum assured or the account value, while others pay both together.

BNM has a standard format for product illustrations that requires your insurer to state clearly which rule applies to your plan, so you shouldn't have to work this out yourself. Confirm it before you buy, rather than assuming your plan works the same way as a colleague's or a friend's.

Can the insurer increase my insurance charges after I've bought the policy?

Yes. The cost of insurance and any rider charges on your ILP are not fixed for as long as you hold the policy, and insurers can change them.

But they must give you written notice first, and BNM sets the minimum: at least three months for most charges, or just 30 days for medical and health riders.

This has happened most often with medical and health riders, since treatment costs have been rising and these charges have followed suit. Because of this, BNM and the insurance industry introduced interim measures for 2024 to 2026:

• Insurers must spread any increase over at least three years rather than apply it all at once.
• If you are 60 or older, and on the lowest tier of your existing plan, insurers must pause increases for one year from your policy anniversary. This pause does not apply if your premium rises simply because you moved into a higher age band.
• If you lapsed or surrendered your policy in 2024 because of repricing, you could reinstate it without new medical checks. That option closed on 31 August 2025.
• Insurers must offer you an alternative plan at the same price or lower, with no new medical checks and no switching cost.

These measures are due to end at the end of 2026. A replacement plan, called MediAsas, has already been piloted in the Klang Valley since late July 2026, with full nationwide rollout planned for January 2027.

Your base life insurance charge can also be revised, as can your TPD charge if you have one. TPD stands for Total and Permanent Disability, and BNM's three-month minimum notice applies to both.

Can I move my ILP to another insurance company?

Not directly. You can't transfer an ILP the way you can transfer an EPF account. To switch insurers, you must first cancel or surrender your current policy. If you surrender early, you may have to pay a surrender charge that becomes final once paid.

Next, you apply for a new policy with the new insurer, who checks your age and health again through a process called underwriting. Because you're now older, your new premium could be higher, and the insurer might also exclude some conditions from your cover. For these reasons, only switch insurers as a last option. Try solving the problem with your current insurer first.

How is an ILP different from buying term insurance and investing separately?

An ILP combines your protection cost and your investment growth into a single premium, both going into one account, and the insurer decides which funds you can choose from.

There's another way to do this: buy a term insurance policy on its own, then invest the rest of your money separately, for example through EPF's voluntary contributions or a unit trust.

This second way keeps your protection cost and your investment separate, so you can see exactly how much you pay for each one and change one without affecting the other. For example, you could switch your investment fund without touching your insurance policy at all.

Neither option is automatically cheaper. It depends on three things: the term premium quoted to you, the ILP's charges, and how well the ILP's funds perform compared to investing on your own.

Is a takaful-based ILP different from a conventional one?

Both takaful and conventional policies have a similar basic idea, but a takaful ILP uses different terms.

Instead of a cost of insurance, a takaful ILP deducts a tabarru' contribution. This isn't a fee paid to the operator, but a way for participants to pool money and help each other, and the underlying funds must also be Syariah-compliant investments.

BNM's rules on minimum allocation and sustainability testing apply to both conventional insurers and takaful operators, though only one part started at a different time. The minimum allocation schedule began a year later for takaful operators than for insurers, while the sustainability testing and illustration rules began on the same date for both.

Does my ILP come with any guarantee against lapsing early?

Some plans include a no-lapse guarantee, usually lasting between three and six policy years depending on the insurer and product.

During this period, your cover stays in force even if your account value falls to zero, as long as two conditions are met: you pay your premiums on schedule, and you don't make any withdrawals.

This guarantee is a specific product feature, not something BNM requires of every plan, so check whether yours includes one, how long it lasts, and what breaks it.

Missing a premium usually ends the guarantee, and so does making an early withdrawal, even within the protected years.

What documents should I ask for before I buy?

Ask for two documents before you buy.

The first is the sales illustration, which shows your projected account value under BNM's two required scenarios: 2% and 5% a year for most funds.

The second is the Product Disclosure Sheet, which sets out the allocation rate, all charges, and the exclusions for that specific plan.

Your agent should also complete a Customer Fact Find with you, a needs-analysis form meant to establish your financial situation and protection needs before recommending a product, not after.

These documents show what a brochure or a verbal pitch usually will not. Get them before you sign.

What can I do if I think I was mis-sold an ILP?

Raise it with your insurer first. Most complaints are resolved at this stage.

If you're not satisfied with the outcome, you can escalate your complaint to the Financial Markets Ombudsman Service, known as FMOS, formed on 1 January 2025 by combining the former Ombudsman for Financial Services with the Securities Industry Dispute Resolution Centre. BNM and the Securities Commission jointly appoint FMOS.

FMOS mediates and decides disputes at no cost to you, covering claims up to RM250,000, and you must file your dispute within six months of your provider's final decision.

Use this service. Do not assume a mis-sold policy is something you are stuck with.

What happens when my ILP reaches maturity, or if I surrender early?

At maturity, you receive your account value, the same amount you'd get if you surrendered your policy on that date.

There's usually no separate guaranteed sum on top of this unless your plan is marketed as capital-guaranteed, which is uncommon and must be clearly disclosed by your insurer if it applies.

If you surrender your policy early, your insurer may charge a surrender charge, which BNM requires to reflect the insurer's actual costs rather than a profit margin.

These costs are mainly commission and setup, and they're heaviest in the early years, so expect your surrender charge to be highest if you surrender early and to decline the longer you've held the policy.

The exact schedule varies by insurer and product. Check your Product Disclosure Sheet for the specific figures on your plan.

How Do You Decide Whether An ILP Fits Your Plans?

The following questions matter more than how an ILP is pitched to you. They cover what determines whether an ILP suits you:

• Can you commit to this premium for at least 15 to 20 years? The allocation schedule and charges are built for long holding periods. Surrendering early loses money by design.
• Would this policy be your only protection, or do you already have separate term cover for income replacement? If this is your only cover, think through what happens if the fund underperforms. Would your sum assured need to increase?
• Are you willing to read your annual sustainability statement each year and act on it? This could mean raising your premium, lowering your sum assured, or switching funds.
• Have you asked your insurer or agent for the projected return illustration? BNM requires them to show two scenarios: 2% and 5% a year for most funds, not just one optimistic number.

There's no single right answer to these questions.

If you already have an ILP, pull out your latest annual statement. Check three things: your projected account value, whether your cover is still marked sustainable, and what charges have changed since last year.

Bring the questions from this guide to your next conversation with an agent. Ask for straight answers on each one before you sign.