L

ife insurance is a promise from an insurance company to a customer related to his or her death that ensures a certain amount of compensation to their heir or heirs upon the customer’s demise.

The choice of what insurance product to purchase depends on the individual’s needs. Sometimes a customer chooses a product without a saving element or other types of insurance products, such as those that provide compensation for accidents, hospital care and so forth.

However, for quite some time insurance has been more than just protection but a combination of investment so it has become an attractive option. This type of insurance is quite different from conventional insurance. The insurance premium of this type of investment, which is often called unit-linked insurance, is used to purchase related fund units. So higher insurance premiums clearly mean more fund units.

A financial report of an insurance company published in the media is a good method to measure a company’s performance. Or we can learn about a company’s performance from the evaluations made by the media.

Obviously the specific characteristic of unit-linked insurance is its transparency, such as in the administration cost, cost of insurance, cost of investment and the movement of the investment value. All of these have to be crystal clear. Next to the movement of the investment value, which is available in most newspapers or magazines on the economy, the rest is usually included in the insurance policy.

There are numerous choices of unit-linked products available today, whether in rupiah or a foreign denomination. The various products are related to the stock exchange, fixed income instruments as well as shares. Of course, a customer can increase his or her investment in the top-up form. So in addition to the regular insurance premium a customer can invest further by paying more.

Indeed, it is not easy to pick and choose the right investment product in the midst of the numerous products available on the market. Compared with the entire range of insurance products, unit-linked products have become the leading star. Insurance-cum-investment products introduced in 1998 and marketed by no fewer than 16 insurance companies experienced an immense increase after just two years of their launch: 150 percent.

After more than one decade, unit-linked products have remained a dependable source of income for insurance companies here, especially from single or regular premiums. People have become more attracted to this type of product because the interest rates of deposits have remained flat for quite some time and these products appear more profitable along with the improved performance of the capital market. Indeed, there is a close relation between the fluctuation of stocks and the growth in unit-linked products because blue chip shares are definitely preferred for this type of investment.

Choo Sin Fook, deputy president director/chief agency officer of PT Great Eastern Life Indonesia, said that unit-linked products are still highly attractive due to their better return on investment compared to conventional products even though there is a certain amount of risk.

“Unit-linked products are far more superior because they cover life insurance while other investment products like mutual funds are pure investment, and conventional life insurance products only provide compensation when a claim is filed,” he said.

He added that another advantage is the better return on investment and investment placements can be switched based on the market value.

The executive director of the Indonesian Association of Insurance Companies (AAJI), Stephen B Juwono, estimates that unit-linked products will grow 50 percent this year, amounting to Rp 32 trillion compared with Rp 21.5 trillion in 2009.

“The growth is due to a number of improved economic indicators in the country,” he said.

Data recorded by AAJI indicate a 35.6 percent contribution of total insurance premium income for 2009 totaling Rp 60.24 trillion. This was an increase of 27.26 percent compared with the same period in 2008 amounting to Rp 47.33 trillion.

What is interesting is that most Indonesians are not insurance minded compared to the people of other countries. The current low market penetration signifies huge business and growth potential.

According to the president director of PT CIMB Sunlife, Vivien Kusumowardhani, as quoted by Bisnis Indonesia, Indonesia is one of the most promising countries in Asia for all kinds of insurance products due to the low market penetration. The country spends only about 3 percent of its gross domestic income on insurance while Malaysia spends more than 4.5 percent and Singapore spends even more at 7.5 percent.

“The research conducted by Sun Life Financial in 2009 shows that 67 percent of the population now view insurance products as being more important,” he said.