Term life or unit-linked? — why agents push the wrong one

Follow the commission, not the brochure.

Two products dominate Indonesian life insurance. Term life: you pay a small premium, and if you die during the term, your family gets a large payout. That is the whole product. Unit-linked(PAYDI, in OJK terminology): a life policy welded to an investment fund, sold as "protection plus savings in one."

Agents overwhelmingly push the second one. Not because it is better for you — because unit-linked products can pay the distribution channel up to 40 percent of your first years' premium in commission (OJK caps it at 40 percent of years one through three). Term life pays the agent a fraction of that. When someone spends 45 minutes selling you the complicated product and 45 seconds dismissing the simple one, the commission table explains more than the brochure does.

One product, one job — or one product, two half-jobs

Term life is insurance in its purest form. You buy a death benefit — say Rp 2 billion — for a term of 10, 15, or 20 years. If you die in that window, your beneficiaries get the full amount. If you outlive it, you get nothing back, which sounds bad until you notice that this is also how your car and health insurance work, and nobody calls those a waste.

The economics work because most insured people survive the term. Your small premium, pooled with everyone else's, funds the payouts to the few families who need them. You are not buying an asset; you are buying the guarantee that your children's school fees survive you. That guarantee is cheap precisely because it usually goes unclaimed.

Unit-linked splits your premium three ways: part buys life cover, part goes into investment funds, and part — the part the illustration glosses over — pays fees. Acquisition costs, fund management fees, administration charges, and the cost of insurance itself, which quietly rises as you age. In the early years, the fee slice is the biggest one; that is where the commission comes from.

Buy term, invest the difference usually wins.

The classic alternative to unit-linked is simple: buy the cheap term policy, and invest the premium difference yourself — index funds, government bonds (obligasi ritel), whatever matches your risk appetite. It usually wins mathematically, for three reasons:

1. You skip the acquisition costs. A large share of your first years of unit-linked premium never reaches the investment fund — it pays the channel that sold it to you.
2. You control the fees. Direct index investing costs a fraction of a unit-linked fund's stacked management and admin charges, and fees compound against you for decades.
3. You separate two decisions that were never meant to be one. Your need for protection and your appetite for investment risk change on different schedules. Bundled, you can adjust neither without disturbing the other.

A worked sketch of the logic, with indicative numbers: suppose a unit-linked plan costs Rp 2 million a month and an equivalent term policy costs Rp 300 thousand. The difference — Rp 1.7 million a month — invested directly for 20 years does not carry acquisition costs, does not pay a rising internal cost of insurance, and is yours from day one. The unit-linked route has to outperform your own investing by enough to cover all of those drags before it breaks even. That is a tall order, and the illustrations quietly assume it happens.

What the regulator saw

None of this is contrarian anymore. OJK tightened unit-linked sales rules in 2022 after years of widespread mis-selling complaints — customers who thought they had bought a savings product discovering near-zero cash values, illustrations that assumed heroic returns, cover sold to people who never understood the fee structure. The new rules forced clearer illustrations and stricter sales standards. The commission structure that created the incentive, capped at 40 percent of years one through three, is still legal and still doing its work.

Which one is for you?

A question that cuts through most sales conversations: "What death benefit does this premium buy me in pure term cover?" Ask it, and the unit-linked pitch has to defend its price against a number instead of a feeling. For most people the decision tree is short:

• You have dependants and a budget: term life. Size the death benefit at roughly 10 times annual income, buy the term that covers your children until independence, invest the rest separately.
• You have no dependants: you may not need life insurance at all. Put the money into health cover first — you are far more likely to be hospitalised than to die this decade.
• You genuinely will not invest on your own and have tried: unit-linked is a defensible, expensive choice. Negotiate the sum assured up and read the fee table before the benefits table.

Whichever way you lean, price both. Get term quotes alongside any unit-linked illustration you are shown, and compare plans on the death benefit per rupiah of premium — the one number the brochure never leads with. Browse life insurance options to see the spread.

Common questions