The commission structure for investment-linked plans (ILPs) has historically been more favourable to agents than standalone medical or term plans — and this has influenced what millions of Malaysians were sold over the past two decades. It is a real systemic issue, Bank Negara Malaysia has acknowledged it, and structural changes are now underway. What you do with that information depends on what you are holding in your policy today.
How ILP Commission Structures Created Misaligned Incentives
An ILP bundles an investment component with insurance protection — part of your premium goes into unit trusts, part funds your coverage. For the agent, ILPs historically paid significantly higher first-year commissions than equivalent standalone medical or term protection plans.
To illustrate the scale of the difference: a straightforward annual renewable term policy or a standalone medical card might pay an agent 20–40% of the first-year premium in commission. An ILP with the same protection coverage, packaged with an investment component, could pay 70–100% of the first year’s premium — sometimes more when bonuses from the insurer were included.
This gap in commission rates meant that recommending an ILP was almost always the more financially rewarding choice for the agent, regardless of whether it was the most cost-efficient solution for the client. The incentive to recommend ILPs was structural, not necessarily personal.
This does not mean every agent who sold an ILP was acting in bad faith. Many genuinely believed ILPs offered clients a better outcome over 20 or 30 years. But the incentive structure made ILPs the default recommendation across the industry, independent of whether they were the right product for each individual client.
What BNM Is Doing About It
Bank Negara Malaysia’s White Paper on the base Medical and Health Insurance/Takaful (MHIT) plan directly addresses this structural misalignment. The base MHIT plan is designed to:
- Provide standardised, portable medical coverage at consistent pricing across all licensed insurers
- Reduce unwarranted premium escalation driven by cost-inefficient plan designs
- Make it easier for consumers to compare plans across providers on a like-for-like basis
- Align incentives between insurers, agents, and policyholders more effectively
The base MHIT plan will be available from all licensed insurers at standardised pricing, which removes the ability for any one insurer to differentiate primarily on commission structure rather than coverage quality. It also introduces portability provisions — which, if properly implemented, will reduce the underwriting penalty for switching, one of the key barriers that currently locks policyholders into existing plans even when those plans are not serving them well.
The expected rollout is a significant structural shift in how medical insurance is sold in Malaysia. It does not fix the past — the 340,000+ policyholders who have surrendered their policies since 2024 are not automatically made whole — but it does create a better baseline for future purchases.
What This Means If You Bought an ILP 10–15 Years Ago
If you purchased an ILP between roughly 2005 and 2015 on the advice of an agent, you are likely now experiencing one or more of these issues:
- Rising premiums as you age — ILP insurance charges increase with age, often steeply after age 50
- Eroding investment units — if your investment returns have not kept pace with the rising cost of insurance charges, your investment account is being depleted to fund your coverage
- Inflexible coverage — older ILP designs can be difficult to restructure without triggering a full policy review and new underwriting
- Mismatched coverage for your current life stage — the plan designed for a 30-year-old may no longer fit a 45-year-old with a family, mortgage, and different financial priorities
These are not character flaws of the product — they are the natural aging mechanics of ILPs that were not always clearly explained at point of sale. Today, you have real options:
- Request a full policy review to understand what your current ILP is actually delivering
- Ask your advisor whether a restructure is possible — separating the investment and protection components, or converting to a standalone medical plan
- Understand the switching risk — if restructuring involves a new application, you need to understand the underwriting implications before acting (see our post on switching insurers and waiting periods)
There is no single right answer for every ILP policyholder. A 45-year-old in good health with a well-performing ILP fund has very different options from a 55-year-old with controlled hypertension whose investment units are running low. The analysis needs to be done individually.
What You Should Ask Your Agent Right Now
Regardless of what you hold, these are the questions worth putting directly to your current agent:
- Why was this specific plan recommended to me over alternatives at the time? A good agent can explain this. An honest one will acknowledge the commission environment without being prompted.
- What alternatives exist today that were not available when I bought this plan? The market in 2026 has products that simply did not exist in 2010.
- If I were buying a plan from scratch today, would you recommend this same structure? This is the most direct test of an agent’s current thinking.
- What does the base MHIT plan mean for my specific situation? An agent who cannot answer this is not current on the regulatory environment affecting their clients.
If your agent cannot or will not engage with these questions, that is useful information about whether this is the right agent for your next phase.
A Note on What Is Actually Changing
It is worth being clear about what the base MHIT plan does and does not do:
It does not retroactively restructure existing ILPs. Your existing policy terms do not change unless you take action.
It does not eliminate agents or their commissions. Agents will continue to be the primary distribution channel for insurance in Malaysia — but the commission differential between product types is expected to narrow, reducing the structural bias.
It does not automatically make cheaper plans better. Standardised pricing is not the same as optimal coverage. The base plan provides a floor — a minimum standard — not necessarily the best configuration for every individual’s needs.
What it does do is make the market more transparent and reduce the ability of commission structures to distort what clients are recommended. That is a meaningful step forward, even if it does not solve every problem.
Frequently Asked Questions
Is an ILP always a bad product?
No. ILPs can make sense for specific profiles — particularly people who want insurance and investment in a single disciplined vehicle, and who are starting young with a long time horizon. The problem is not the product itself but the widespread application of a product designed for one profile to clients across very different profiles, driven partly by commission incentives rather than suitability analysis.
What is the BNM base MHIT plan exactly?
The base Medical and Health Insurance/Takaful plan is a standardised medical card product that BNM is requiring all licensed insurers to offer. It sets minimum coverage standards, standardised pricing parameters, and portability provisions. It is intended to be the comparable baseline against which all other medical plans can be measured, and to ensure that basic, affordable medical coverage is accessible to all Malaysians regardless of which insurer they choose.
My agent told me I cannot touch my ILP or I will lose my coverage. Is that accurate?
It depends on your specific policy structure. Some ILPs do have minimum premium thresholds below which coverage lapses — this is a real feature of some products. However, “you cannot change anything” is rarely accurate. Most ILPs allow changes to sum assured, rider additions and removals, and premium allocation ratios. What may be true is that certain changes trigger a re-underwriting requirement. Request the specific policy terms in writing and have an independent advisor review them before making any decision.
How do I find out if my premium has been inflated by unnecessary riders or add-ons?
Request a full policy illustration from your insurer — this document shows the breakdown of every charge on your policy, including insurance charges by age, rider costs, and fund allocation. Compare that against what protection those charges are actually delivering. A policy review with a qualified advisor can translate this document into plain language.
If I restructure from an ILP to a standalone medical plan, what are the risks?
The primary risk is underwriting. Depending on your current health status and age, a new standalone medical plan may exclude conditions that your existing ILP currently covers. This needs to be assessed carefully, ideally by someone who can see both the old and proposed new policy terms side by side. Never cancel before you have confirmed the new coverage terms in writing.
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.