The question unit-linked customers should ask but rarely do is: "of the 100 baht I pay in premium, how much actually reaches the investment?" This article unpacks every layer of charges from the customer's point of view. By the end you will be able to read a sales document and know what to ask before deciding. To be clear from the start: this is educational, not an inducement to buy or to avoid.
The overview: one premium, deducted layer by layer before it reaches the fund
Premiums paid into a unit-linked policy do not go into the fund whole. They pass through at least three layers of deduction: the first taken immediately from the premium, the second deducted monthly from the policy value, and the third embedded in the funds chosen. Understand those three and the whole picture becomes clear.
Layer 1: the premium charge
The moment you pay, the company deducts an insurance administration charge as a percentage of the premium — usually at its highest proportion in the early years, falling gradually by policy year. This is why the policy value in the first two or three years is significantly below the cumulative premiums, and the main reason this product does not suit being held for a short time. The actual rates differ by plan; see the fee table in the sales documents [check the conditions in the policy].
Layer 2: monthly deductions from the policy value
This layer has two main components working quietly every month.
- The cost of insurance (COI) — the cost of the life cover, calculated on actual age, sex and the sum insured chosen. The key point: COI rises every year with age. In youth it is barely noticeable, but after 60 it accelerates markedly, and it is the main thing that eats into the policy value of a holder in retirement.
- The policy administration fee — a monthly servicing charge at the specified rate.
Both are deducted from the policy value by selling units, which means they continue even when you stop paying premiums. That is the mechanism behind the risk of the policy lapsing, which we describe in our article on unit-linked limitations.
Layer 3: fund-level fees
The units held carry the fund's own costs — management fees and the fund's other expenses — which are already reflected in the unit value. Some policies also charge a fee for switching funds more than a specified number of times. See each fund's prospectus for the details.
Putting all the layers together: questions to ask the seller
- Of 100 baht of first-year premium, how much is actually invested? And in year five?
- What is the COI for the sum insured I have chosen at ages 40, 50, 60 and 70? May I see the table?
- If fund returns are zero for five consecutive years, what is left of the policy value?
- With all the charges combined, what annual fund return is needed for the value not to go backwards?
A licensed, professional seller must be able to answer all four with supporting documents, not with vague assurances.
A fair perspective on the product
These charges are not a swindle; they are the cost of the flexibility and the cover the product provides. The right question is whether we genuinely use that flexibility, and whether there is a lower-cost alternative for the same need — such as buying term cover and investing in mutual funds separately, which suits some people but not everyone. Comparing the numbers of both routes before deciding is the fairest thing you can do for your own money.
In short
A unit-linked premium passes through three layers of charges: from the premium, monthly, and at fund level. Understand all three and you will see that this product is designed to be held long and to be monitored. If you already hold one and want to learn to read your own policy value, or are considering one and would like a neutral perspective, message us on LINE any time.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.