We have written about unit-linked policies in four detailed instalments — the mechanism, the charges, the limitations, and the question of level premiums. This article is the "exam before signing": three things which, if you cannot yet answer them all, mean it is not yet time to decide. It works equally well for testing yourself or testing the seller. As always: this article is educational; it neither promotes nor dismisses the product.
Know 1: Know that the investment risk is yours, entirely
One sentence to have memorised before signing: the value of a unit-linked policy rises and falls with the funds chosen; there is no guarantee of return or of principal. Good funds, the value grows; poor funds, the value shrinks — and if it shrinks far enough, with charges continuing to be deducted, the policy can lapse even after years of premiums. A test of your own temperament: if next year you open it and the value is two or three hundred thousand below the premiums paid, would you sleep? If the answer is that you would be stressed enough to want to surrender immediately, this product is not for you. Volatility is its feature, not a defect.
Know 2: Know the charges at every layer, and their effect in the early years
Unit-linked policies have three layers of cost whose actual figures you must see before signing: the charges deducted from the premium (highest in the early years, so the amount actually invested is far less than the premium); the cost of insurance (COI), deducted monthly and rising with age every year; and the fund-level fees. We break these down in our article on unit-linked charges from the customer's point of view. The test: ask for the documents and be able to answer "out of 100 baht of first-year premium, how much is actually invested?" and "what is the COI at age 60 for the sum insured I chose?" If you cannot answer, you have not read enough [check the conditions in the policy].
Know 3: Know that this is a policy to be tended, not filed away
With traditional insurance, once bought, the main duty is paying premiums on time. A unit-linked policy asks more: reviewing the fund portfolio inside the policy at least once a year, checking the policy value against the charges being deducted — particularly as you age or after taking a premium holiday — and adjusting the sum insured with your stage of life. Anyone who knows they have neither the time nor the inclination for this may find that a product requiring no tending — traditional insurance plus investing separately — answers their real life better. The test: how many times did you open your own investment portfolio last year? If the answer is zero, that is the answer to this question too.
Passed all three? There's still a final step
Passing the three means you are qualified to consider it, not that you should buy. The final step is comparing directly with the alternative: buying traditional insurance with the same sum insured and investing the premium difference in mutual funds yourself, then laying the two paths side by side at year 10 and year 20 under the same return assumptions. Some people compare and find unit-linked wins on the flexibility they genuinely need; others find buying separately is cheaper and easier to understand. Both answers are correct if they come from a real comparison.
In short
Three things to know before unit-linked: the risk is yours, the charges at every layer, and the burden of tending the policy. Pass all three, then compare with the direct alternative as the final checkpoint. Use this framework and whether the answer is buy or don't buy, it will be a decision you can always explain. If you would like help laying out the numbers for both paths, message us on LINE any time.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.