What Is Life Insurance? There are so many types of insurance and protections available in the market such as business, property, health, vehicle, burial, and then of course there's life insurance. Life insurance is a contract between a policy owner (you) and the insurer where the insurer (insurance company) will pay a specific amount of money to the beneficiaries (the individual that will receive the money: could be your spouse, children etc) if death or terminal or critical illness occurs to the policy owner. How Does It Work? The most basic process for life insurance is this: The policy owner will pay the arranged amount at regular intervals or in lump sums (both are known as premiums) into a fund managed by the insurance company. In return, when the policy owner suffers a hardship or death, the insurer will give a pre-determined sum of money to the policy owner's beneficiaries. Example: Maisarah (policy owner) bought a life insurance plan from the Pro-Life Company (insurer) to ensure that her children (beneficiaries) will be taken care of in the event of her death or critical illness. Maisarah has to pay RM 200 per annum (premium) for her insurance plan for the next ten years (term). If she happens to die or be struck with a critical illness within those ten years, her children will receive RM 120,000 from the insurer. Aside from ensuring protection, life insurance can also be used as an investment portfolio, and also as a retirement fund. Types Of Life Insurance Policies There might be more branches of policies available out there, but generally, life insurance is split between these two: Term Life Insurance (non-permanent) and Whole Life Insurance (permanent). Term Life Insurance (Non-Permanent) What is Term Life Insurance? As the name suggests, this type of life insurance is not permanent. Therefore, if you choose to purchase a term life insurance, the most basic fact that you need to know is that your beneficiary will be paid only if you occur death during the contract period only. Similar case applies if you happen to contract any critical illness during those period. Lets use Maisarah as an example again: what happens if Maisarah (the policy owner) is still alive and kicking at the end of her ten-year contract period? Unfortunately, if Maisarah decides not to renew her insurance contract, no sum will be paid to either Maisarah or her kids (beneficiaries) in the event of her death or critical illness in the future, and the premiums paid throughout the years will have gone to waste. What kind of protection does Term Life Insurance provide? In a nutshell, term life insurance provides protection coverage only, with no added cash balance or investment values. So if our policy owner, Maisarah, purchased a term life insurance for RM 50,000, the insurance amount will be the same throughout her contract period. The pros of Term Life Insurance Like everything else in the insurance business, each products have their own pros and cons. Let's review the benefits of purchasing Term Life Insurance before we reveal the drawbacks: Lower Premiums: Term life insurance has the lowest premiums compared to other types of life insurance - you can get maximum amount of protection for the least amount of premium. For example First Life offers a term life insurance premium starting from RM 175 per annum (for those aged 18 - 45). For this premium, the sum insured is RM 40,000 (natural death) and RM 80,000 (accidental death). Flexibility of Application: Because of its non-permanent state, insurance companies are generally more flexible in accepting applications for this type of insurance, especially for those who are under 50 years of age and in good health condition. In fact, most insurance companies do not require a medical examination from applicants. Flexibility of Policy: Many term policies offer a term-to-permanent insurance privilege. The Cons of Term Life Insurance Cost Increment: We mentioned that term insurance can be renewed or changed to a permanent life life insurance, but this might cost the premium to increase--dramatically. This depends on several conditions such as the age and the health condition of the policy holder, and the policy's term and conditions. Age Restrictions: Unlike a permanent based insurance, age matters when it comes to term life insurance. Typically, insurers won't allow people from the age group of 50/55 and above to buy a term life policy. No Cash Value: As we have mentioned, term life insurance focuses solely on life coverage and has no investment value--therefore there will be no added cash value in your coverage sum. Cash Value is the amount of money that you will get back if you cancelled your policy.
Sunday, September 6, 2015
Life Insurance in Malaysia - A Beginner's Guide
What Is Life Insurance? There are so many types of insurance and protections available in the market such as business, property, health, vehicle, burial, and then of course there's life insurance. Life insurance is a contract between a policy owner (you) and the insurer where the insurer (insurance company) will pay a specific amount of money to the beneficiaries (the individual that will receive the money: could be your spouse, children etc) if death or terminal or critical illness occurs to the policy owner. How Does It Work? The most basic process for life insurance is this: The policy owner will pay the arranged amount at regular intervals or in lump sums (both are known as premiums) into a fund managed by the insurance company. In return, when the policy owner suffers a hardship or death, the insurer will give a pre-determined sum of money to the policy owner's beneficiaries. Example: Maisarah (policy owner) bought a life insurance plan from the Pro-Life Company (insurer) to ensure that her children (beneficiaries) will be taken care of in the event of her death or critical illness. Maisarah has to pay RM 200 per annum (premium) for her insurance plan for the next ten years (term). If she happens to die or be struck with a critical illness within those ten years, her children will receive RM 120,000 from the insurer. Aside from ensuring protection, life insurance can also be used as an investment portfolio, and also as a retirement fund. Types Of Life Insurance Policies There might be more branches of policies available out there, but generally, life insurance is split between these two: Term Life Insurance (non-permanent) and Whole Life Insurance (permanent). Term Life Insurance (Non-Permanent) What is Term Life Insurance? As the name suggests, this type of life insurance is not permanent. Therefore, if you choose to purchase a term life insurance, the most basic fact that you need to know is that your beneficiary will be paid only if you occur death during the contract period only. Similar case applies if you happen to contract any critical illness during those period. Lets use Maisarah as an example again: what happens if Maisarah (the policy owner) is still alive and kicking at the end of her ten-year contract period? Unfortunately, if Maisarah decides not to renew her insurance contract, no sum will be paid to either Maisarah or her kids (beneficiaries) in the event of her death or critical illness in the future, and the premiums paid throughout the years will have gone to waste. What kind of protection does Term Life Insurance provide? In a nutshell, term life insurance provides protection coverage only, with no added cash balance or investment values. So if our policy owner, Maisarah, purchased a term life insurance for RM 50,000, the insurance amount will be the same throughout her contract period. The pros of Term Life Insurance Like everything else in the insurance business, each products have their own pros and cons. Let's review the benefits of purchasing Term Life Insurance before we reveal the drawbacks: Lower Premiums: Term life insurance has the lowest premiums compared to other types of life insurance - you can get maximum amount of protection for the least amount of premium. For example First Life offers a term life insurance premium starting from RM 175 per annum (for those aged 18 - 45). For this premium, the sum insured is RM 40,000 (natural death) and RM 80,000 (accidental death). Flexibility of Application: Because of its non-permanent state, insurance companies are generally more flexible in accepting applications for this type of insurance, especially for those who are under 50 years of age and in good health condition. In fact, most insurance companies do not require a medical examination from applicants. Flexibility of Policy: Many term policies offer a term-to-permanent insurance privilege. The Cons of Term Life Insurance Cost Increment: We mentioned that term insurance can be renewed or changed to a permanent life life insurance, but this might cost the premium to increase--dramatically. This depends on several conditions such as the age and the health condition of the policy holder, and the policy's term and conditions. Age Restrictions: Unlike a permanent based insurance, age matters when it comes to term life insurance. Typically, insurers won't allow people from the age group of 50/55 and above to buy a term life policy. No Cash Value: As we have mentioned, term life insurance focuses solely on life coverage and has no investment value--therefore there will be no added cash value in your coverage sum. Cash Value is the amount of money that you will get back if you cancelled your policy.
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