LIFE INSURANCE
Life insurance is a contract between an individual and a life insurance company.
The individual agrees to pay a premium and in return, the insurance company promises to pay a predetermined amount of money
to:
The insured, in the event he or she becomes disabled or when
some specified event takes place, and/or;
A beneficiary or beneficiaries if the insured passes away.
What it offers:
Predominantly, life insurance is bought for the following reasons:
a.) To create an immediate “estate”
once the Insured passes away. This leaves one peace of mind knowing that the family has immediate cash to fall back on. There
will be no need to liquidate assets to pay for funerals and clear debt in the event.
b.) To get financial protection in case of disability.
c.) To get health insurance cover. From
our experience, this is important in a sense that health insurance cover provided by life insurers is generally better than
those provided by general insurers. Why? It is because insurance offered or attached to life insurance policies are not prone
to cancellations or “renewal not invited” like most general insurance policies due to bad claims experience. As
long as you do not overuse your lifetime limit and pay your premium regularly, you are safe from such bad experiences. The other reason is that, depending on the type of policy you buy, you can also tailor
make your health insurance cover without much hassle depending on your life-stage, something you cannot do with general insurance
policies.
d.) As a form of savings for retirement
or planning for children’s education; while obtaining protection.
e.) To get a payout upon diagnosis of
“critical illness” such as heart diseases & cancer. Importantly, you need the money to pay for the treatment
etc. in a short period of time, which can be substantial, not after you are dead. Apologies, but I am being frank and you
must know what you are getting when you buy one. Somehow, its sad that a lot of people I know don’t know what kind of
policy they’ve bought and if they do, don’t really how understand what kind of riders they have.
f.)
Other reasons are varied such as to cover key employees or obtain financial protection from mortgage loans in the event
of death by the borrower. We strongly urge those who have mortgage loans to purchase MRTA, MLTA or at least some form of term
assurance. It really reduces stress for grieving spouses.
Some examples of insurance policy types:
There are basically four types of life insurance policies sold here in Malaysia.
They are Term, Endowment, Whole Life and investment Link insurance.
1. Term insurance:
Term life insurance provides for the payment of the sum assured only if the
life assured dies within a specified period e.g. 10, 15, 20 years and do not provide any surrender values nor loan values.
If the life assured does not die, the policy ceases and the premiums paid are retained by the insurance company. Thus, the
premiums paid contain no savings element. Note however, there are also a few term insurance policies in the market that do
offer a refund on basic premium at the end of the term and they are a minority. As such, term life insurance provides the
maximum protection on the life assured for a specified number of years.
They are considered the least expensive form of life insurance cover with
the “most bang for the buck” and are useful for the following purposes:
To provide life insurance cover for a fixed period of time.
To cover a mortgage loan, e.g. over a tenure of 20 years.
To create an immediate “estate”.
2. Endowment insurance:
Endowment insurance provides
for the payment of the sum insured and any accrued bonuses at the maturity of the policy, or on death of the life assured,
whichever comes first. Premiums are payable throughout the term of the policy.
What it offers:
Like whole life policies,
endowment policies steadily build up cash values. However, since an endowment policy matures much earlier than a whole life
policy, the cash values build up more rapidly. Therefore, the premium payable is often higher than
that of a whole life policy. Thus, this type of policy is a good and systematic method of saving and obtaining insurance protection
during the given period.
3. Whole Life insurance
Whole life insurance is usually
a policy designed to the insured with a level premium payable for life. If the insured dies, the sum assured less any outstanding
policy loans are payable to beneficiary.
What it offers:
This is a permanent insurance
policy and hence, there are surrender values available. Although it is a whole life policy, you are not expected to pay premium
all your life and may chose to stop or cancel the policy at any time. It however, very importantly gives you the option to
do so at any stage unlike the other policies which have fixed terms.
The advantages of whole life
insurance are:
It gives the insured
maximum permanent protection at a moderate cost each year.
It need not be renewed
or converted as with some term policies.
It has surrender values,
loan values, and paid-up values and it also contains non-forfeiture privileges.
4. Investment Link insurance
Investment link insurance
is a whole life policy with an investment vehicle in it to potentially give you better returns than the other types of policies.
What it offers:
Whole life cover with
potentially higher returns
Ability to tailor-make
your policy and make changes to it depending on your needs in future.
Ability to attach a
good medical insurance scheme to it.
It is helpful in that
you can save for future events like purchasing a new car etc and can withdraw money from the policy without any penalty such
a policy loan where you have to pay interest. Great for planning education fund.
A word of advice, never ever
buy a children’s educational policy where you have to pay interest if you take out money. It just does not make any
sense to pay interest for money that is yours in the first place to use for eventualities. It’s as though you have to
pay interest for taking out money from your a/c through an ATM.
