It's getting tougher and tougher on most people with the cost of living shooting up like a rocket nowadays. If it were only the price of luxury items that were rising nobody would be too concerned. But instead it's the things we use day to day, which has obviously put the middle-class to low-income folks in varying degrees of financial trouble.

For example, regular food prices have risen 50 per cent over the past few years. Bus fares have doubled in the same period.

As a result, people have started thinning their priority list of expenses. And life insurance is one of them.

Though life insurance has been around for many decades, Thais are familiar with only the traditional type of product - or what's called "whole life".

With a whole-life policy, an insurer provides protection for policyholders and when the policy matures will pay the policyholder a portion of the money paid in, plus interest.

Standard policies mature in 10, 15, 20 years or longer.

If you are a return-conscious investor, you probably know that short-term interest rates in the market today would technically beat the interest rate on such policies.

However, life insurance is a long-term business, and the long-term interest rate has remained at the same level despite changes in deposit rates at banks.

Besides, the attractive short-term interest rates that many banks use to attract customers don't come with protection in case you die.

So, to judge the percentage return the banks against what life insurers can offer is like comparing apples and oranges.

An investment-linked universal life insurance policy was first introduced to the Thai market last year by the industry's largest insurer, American International Assurance (AIA).

Conceptually, the product called universal life provides life coverage for policyholders with part of the premium funnelled into investments.

For the traditional product, the insurers pool the premiums of their policies together. The total premium will be portioned into many parts, including the company's expenses, commissions, reserves, claims, investments and more.

Usually, life insurers put about 80-90 per cent of their total investment portfolio in fixed-income instruments. The rest is invested in equities, cash or loans.

But with universal life products, policyholders can choose which investment vehicles in which they would want their premium to be invested and in what proportion.

In developed countries, universal life policies are developed to be so flexible that the investment part can generate a return higher than the premium.

Because universal life is a new product to the local market, currently only two insurers have been granted licences from the Insurance Department to sell such products.

AIA uses its in-house financial team to manage the investment portfolio for its 1,222 current universal life customers.

Muang Thai Life Assurance uses the services of Kasikorn Asset Management to manage its policies.

Muang Thai Life's policy is a single-premium product, in which 0, 10 and 20 per cent of the premium will be invested into equities. Since the launch in February, Muang Thai Life's universal life policies have already generated Bt80 million in premiums.

With the moves of interest rates in the market, it's possible for other life insurers to consider launching this product.

But launching a universal life product is not easy. An insurer needs to invest a lot and must have a system to support the policies.

It's not like it can give away the premium to an asset-management company to manage.

The Insurance Department will need to check the systems and the readiness of the insurer.  Currently, some life insurers and asset-management companies are in talks about launching these products.

So make sure that you ask as many questions as you can.

Then, you just might be able to eventually cover the premium with returns from the investment portion of your policy.

Wouldn't that be nice?

Piyarat Setthasiriphaiboon

The Nation