Your Investment-Linked Policy (ILP) did not lock in the cost of your medical coverage — and that is the single most important thing to understand before your next renewal. What it locked in was your total premium payment. What happens inside that premium has always been variable, and that is why insurers are now asking you to top up.
How an ILP Actually Works
When you pay your ILP premium each month, that money goes two places at once:
- Insurance charges: the actual cost of providing your medical, life, and critical illness coverage
- Investment units: the remainder is used to purchase units in a unit trust fund of your choice
The idea was straightforward. Your investment units would grow over time. As you aged and your insurance charges rose, those accumulated units would be sold to cover the difference. In theory, you would never need to pay more out of pocket.
In practice, two things went wrong for many policyholders at once.
Why the Units Are Running Out
Insurance charges do not stay flat. Every year you age, the cost of covering you increases — this is standard actuarial pricing, not a policy change. From age 40 onward, those charges typically accelerate.
At the same time, Malaysia’s medical inflation has been running at around 16% per year. This is not just premiums increasing — it reflects the actual cost of hospital stays, surgical procedures, specialist fees, and medication. Insurers must keep insurance charges aligned with the cost of claims they are paying out. When medical costs rise faster than expected, insurance charges rise faster too.
If your unit trust investments returned, say, 6-8% per year, but your insurance charges were rising at 12-16% annually, the gap was being bridged by eroding your invested units. Given enough time — and especially if markets underperformed in certain years — those units deplete entirely.
When there are no units left to sell, the insurer cannot deduct the insurance charges automatically. They notify you: top up with cash, or your coverage lapses.
This Is a Design Feature, Not a Scam
It is worth being direct here. The ILP structure is a legitimate product design that has been sold in Malaysia for decades. BNM regulates it, and millions of Malaysians hold these policies.
The problem was largely one of communication at the point of sale. Agents often illustrated the best-case scenario — strong fund returns keeping the policy self-sustaining indefinitely. The risk scenario, where charges outpace growth, was sometimes glossed over or buried in documents few policyholders read carefully.
Generali Malaysia’s recent medical repricing announcement brought this issue into sharp focus for many policyholders. They are not alone — across the industry, ILP holders are receiving similar notices as the compounding effect of medical inflation catches up with policies sold 10 to 20 years ago.
BNM now requires insurers to proactively notify policyholders when their policy is at risk of lapsing — so if you received a letter, your insurer is following the rules.
What Are Your Options When Asked to Top Up?
You have more choices than just paying what the insurer asks. Before making any decision, request a coverage illustration that shows projected insurance charges over the next 10 to 15 years. Then weigh your options:
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Top up as requested. This is the simplest path if the amount is manageable and you want to maintain your existing coverage level without changes.
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Switch to a lower coverage level. Reducing your annual limit or sum assured lowers the insurance charges deducted from your units each month, which slows the depletion rate.
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Add a deductible to the medical rider. By agreeing to pay the first portion of each hospitalisation claim yourself, you significantly reduce the insurance charge on the rider. See deductible options explained for how this works.
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Convert to a standalone medical card. A standalone medical card separates your medical coverage from the investment component entirely. You pay only for the cover you need each month, with no investment element to manage. This is worth comparing carefully — it is not always cheaper at older ages, but it can be more transparent.
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Request BNM’s alternative MHIT product. Under BNM’s interim measures, insurers are mandated to offer policyholders an alternative medical plan at the same or lower premium if they choose not to continue their existing arrangement. Ask your insurer directly.
The one thing you should not do is cancel without exploring these alternatives first. Cancelling means losing your medical history with this insurer, and any new application will involve fresh underwriting — pre-existing conditions you have developed over the years may now be excluded or loaded with higher premiums.
A policy review with an independent advisor is the right first step. Bring your policy document, the top-up notice, and your latest benefit illustration.
Frequently Asked Questions
Why didn’t my agent tell me this could happen?
Many agents illustrated the optimistic scenario — strong investment returns keeping the policy self-sustaining. The downside scenario was disclosed in policy documents, but rarely walked through clearly at point of sale. BNM has since tightened requirements around product disclosure for ILPs.
Can I just stop topping up and let the policy lapse?
You can, but this is almost always the worst financial outcome. You lose the cover you have been paying for, and any new policy you apply for will involve fresh medical underwriting. Conditions you have developed — even minor ones — may result in exclusions or higher premiums on a new plan.
Does my insurer have to follow BNM rules on premium increases?
Yes. BNM’s interim measures require that premium changes be spread over a minimum of three years, with no single year’s increase exceeding 10%. If you received a notice for a sudden large jump, ask your insurer to show you how this complies with the BNM framework. They are bound by it.
How do I know if my ILP units are nearly depleted?
Request a policy performance statement from your insurer. It will show your current unit value, the annual insurance charges being deducted, and a projection of how long the existing units will last at current charge rates. Some insurers make this available through their online portal.
Is the top-up amount fixed forever once I agree to it?
No. A top-up stabilises your policy now, but insurance charges will continue to rise as you age. The insurer should provide an updated projection showing when the next review point might occur. Factor this into your long-term financial planning.
Have a question that wasn’t covered here? Our advisors at FINNO. offer free, no-obligation consultations — no hard sell, just honest answers about what’s right for your situation.