One of the selling points that draws people to unit-linked policies is a line along the lines of "pay the same premium forever — no need to fear expensive health premiums in old age." It sounds like the answer to health insurance's biggest problem. But how does the mechanism behind it work, and what conditions are hidden in it? This article opens it up plainly, so a decision rests on understanding rather than hope.
The real mechanism: the premium is level, but the cost is not
The first thing to understand: in a unit-linked policy, the cost of health and life cover (the cost of insurance and rider charges) still rises with age every year, just as in ordinary insurance. What is level is only the premium you choose to pay in. The mechanism is this: while you are young, the premium paid exceeds the cost, and the surplus is invested and accumulates as policy value. As you age and the cost overtakes the premium, the system sells the accumulated investment units to pay the difference on your behalf.
Put simply: you are not "paying nothing extra" — you are "paying the extra out of your own investment, saved in advance."
The conditions that make the plan work or fail
A level-premium plan holds up for the whole term only if the accumulated value plus the investment return is enough to pay the ever-increasing cost through to the final age. The decisive variable is fund performance, which is not guaranteed. If the market returns less than assumed for a sustained period, or a bad stretch coincides with the value being drawn down heavily, the policy value can run out early — and the remaining options are to pay additional premiums (top up), reduce the cover, or let the policy lapse. Illustrations in the sales documents must therefore be examined across several scenarios — low, medium and high returns — not just the attractive line [check the conditions in the policy].
Comparing fairly with the traditional route
With traditional health insurance, the premium rises clearly by age band, so you can see the real burden and plan for it directly — such as the parallel saving technique we describe in our article on preparing for rising premiums. A unit-linked policy converts that burden into investment risk you carry yourself, with several layers of charges along the way, in exchange for the convenience of smooth cash flow and a degree of flexibility.
Looked at another way: buying traditional health insurance and investing separately in parallel produces a structurally similar outcome, while you control the portfolio and see the costs separately. The question is who you want managing this mechanism — yourself, or a single policy — and the answer differs according to each person's discipline and knowledge.
So "better" depends on three things
- Are the return assumptions realistic? Always ask for the lowest-case illustration, and ask what happens if it is worse than that.
- Can you hold it long term and keep monitoring it? This plan requires checking the policy value regularly; it is not buy-and-forget.
- Do you understand that the risk sits with you? The sales line says the premium is level, but nobody guarantees that the cover will last to the age you hope for if the investments do not cooperate.
In short
A level premium in a unit-linked policy is a clever financial mechanism, not magic. It is saving in advance plus investment risk you carry yourself, under the product's charges. For anyone who understands it fully and accepts the conditions, it is one option. For anyone who wants certainty, the traditional route with a parallel savings plan may answer better. If you would like to compare the two paths with your own numbers, message us on LINE any time.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.