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A guide to effectively plan and prioritize your insurance purchases.
Citation preview
22
Smart Guide to Insurance Planning
Table of Contents
PREFACE ................................................................................................................ 3
INTRODUCTION ..................................................................................................... 6
COMPREHENSIVENESS OF COVERAGE ...................................................................... 9
PERSONAL ACCIDENT INSURANCE ......................................................................... 11
MEDICAL & HOSPITALIZATION INSURANCE ............................................................ 15
THE CRITICAL ILLNESSES POLICY ........................................................................... 20
THE ENDOWMENT POLICY .................................................................................... 28
WHOLE LIFE INSURANCE POLICY ........................................................................... 34
INVESTMENT-LINKED INSURANCE POLICY ............................................................. 39
SUMMARY OF INSURANCE POLICIES ...................................................................... 48
OVERVIEW OF INSURANCE TYPES .......................................................................... 51
10 GENERAL INSURANCE TIPS AND ADVICE ........................................................... 61
SUMMARY OF BANK NEGA E REPORT ................................. 65
CRITICAL ILLNESSES EXPLAINED ............................................................................ 72
ABOUT THE AUTHOR ...........................................................................................105
99
Smart Guide to Insurance Planning
Comprehensiveness of Coverage
suitable analogy- home
security. There are a few facts that we need to know when it comes to setting up a
burglar-proof home security system.
First, we do not know which door or window the burglars will break in from. If we
have something they really want, they might even dig a tunnel right into our safe.
day; you never
kn
A good home security system takes into account every potential break-in channel.
Every door and window in the entire building that might give the burglar entry into
the house is protected, leaving nothing to chance.
So, if a good security system keeps your windows and doors from burglar
infiltrations, what should your insurance policies do to ensure your personal risk is
well taken care of? In the next few chapters in this guide, I would like to share with
117
Smart Guide to Insurance Planning
figures. The annual & lifetime limits are deducted as you make claims.
Co-insurance is a commonly used phrase in medical insurance packages. It simply
means that you as the policyholder need to pay a certain percentage from the total
claims made.
For instance, if you are hospitalized for 3 days, and use up a total of RM 6,780.24.
Assume that the co-insurance of your medical package is 10% with a cap of RM 500,
you will need to pay out:
RM 6,780.24 x 10% = RM 678.02
119
Smart Guide to Insurance Planning
Case Study
For a healthy, non-smoking individual who subscribes to an RM 200 Room & Board
medical plan, with an annual limit of RM 120,000 and lifetime limit of RM 400,000,
the table below shows the premium amount for different age groups.
EEstimated Yearly PPremium
((RM)
AAge
FFemale
MMale
25 580 564
35 588 566
45 906 909
55 1,463 1,294
65 2,960 2,824
According to the table above, a 35-year-old male would need to pay a yearly
premium of RM 566.
The next section talks about the importance of Critical Illnesses coverage, and why
it is important in your risk management strategy. Unlike the medical plan coverage
mentioned here, Critical Illness coverage is where all the common big-tickets
illnesses are covered.
229
Smart Guide to Insurance Planning
As witih any whole-life policies with cash value, you can also apply for a policy
loan.
(2) The Insurance Component
The insurance component is also fairly straightforward. In the event of Death or
Total Permanent Disability (TPD), you will be paid the Insured Amount. However, if
you are diagnosed with Critical Illness, the premium of the endowment policy will
continue to be paid by the insurance company.
In the case of the father setting up the endowment policy for his child, the
insurance component would work slightly differently. If the child should pass on
first or suffers from TPD, the same thing applies- the Insured Amount stated in the
father
passed on first, suffered from
TPD or was diagnozed with
Critical Illness, the insurance
company would sponsor the child
until the policy matures.
For the above scenarios, you
should refer to the insurance
c riders that
are attachable to the endowment policy, as well as understand the terms and
conditions to fully take advantage of the policy.
Why an Endowment Policy?
339
Smart Guide to Insurance Planning
Investment-linked Insurance Policy
Many insurance companies in
Malaysia have begun to phase
out conventional whole-life
policies in favor of this new risk
management tool. And like any
best that we understand a little
history on how this product
came about and why it would
seem to be a force to reckon
with.
-linked policy?
An investment-linked policy (ILP) is sometimes also known as a unit-linked
insurance policy or variable life insurance policy. In the Malaysian context, I will
just stick to the term investment-linked .
An ILP is basically a hybrid of 2 financial products- a unit trust and the good old
insurance contract. Why did the insurance industry decide to clone such a beast in
the first place?
Consider this scenario: not too long ago, the unit trust industry was born. But
before anyone knew anything about it, everyone had already accepted the idea of
saving and accumulating their wealth in their insurance policies. And
difficult to change decided about something.
Whenever the unit trust industry preaches about the potential returns, the public
449
Smart Guide to Insurance Planning
Starting from the right, we have PPersonal Accident insurance, one of the most
affordable and also the most important coverage in a risk management portfolio.
Next, we have MMedical and Hospitalization benefits. A medical card can be very
handy these days, especially with the rising cost of health services.
Further left, we have WWhole-life Insurance, CCritical Illness Insurance and
Investment-linked Insurance stacked together. These policies are equally
important. With the introduction of Investment-linked insurance, you can now add
various types of riders into the policy, making it a very versatile risk management
tool.
On the far left is the EEndowment Plan, the least important insurance policy-. This
does not m product. It is labeled this way in relation to the other
products on the right, which you should prioritize. This is just a guideline, and you
An
Overv
iew
of
Insu
ran
ce P
oli
cies
(co
nt'
d)
Po
licy
Typ
eC
on
tract
Term
sC
om
mo
nBen
efi
tsC
ash
Valu
e &
Co
rresp
on
din
g R
isk
Qu
ick
Fact
s
Cri
tica
l Il
lness
Up t
o 8
7 y
ears
old
Dea
th B
enef
it
Tota
l Pe
rman
ent
Dis
abili
ty B
enef
it
36 C
riti
cal Ill
nes
ses
Com
es w
ith c
ash v
alue.
Pre
miu
m
inve
sted
in c
om
pan
y at
min
imal
ris
k.Po
licy
imm
edia
tely
void
aft
er c
laim
mad
e.
Wai
ting p
erio
d o
f 60 d
ays
usu
ally
ap
plic
able
, so
only
cla
imab
le f
or
cove
red
even
ts 2
month
s af
ter
polic
y in
forc
e.
En
do
wm
en
t Pla
n
12-y
ear
15-y
ear
18-y
ear
21-y
ear
24-y
ear
27-y
ear
30-y
ear
Wai
ver
of
Prem
ium
Payo
r Be
nef
it
Polic
y fo
cuse
s on g
ener
atin
g c
ash
valu
e an
d p
rovi
din
g m
inim
al
insu
rance
ben
efit
.Pr
emiu
m inve
sted
in c
om
pan
y at
m
inim
al r
isk.
You c
an c
hoose
to w
ithdra
w m
oney
eve
ry
3 y
ears
but
doin
g s
o r
educe
s to
tal pay
out
when
endow
men
t pla
n m
ature
s.
You c
an a
pply
for
Polic
y Lo
an -
can
giv
e yo
u loan
am
ount
of
up t
o 9
0%
of
your
exis
ting c
ash v
alue.
Loan
inte
rest
rat
e co
nsi
der
ably
low
er t
han
that
of
pre
vaili
ng
ban
k lo
ans.
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Smart Guide to Insurance Planning
Insurance Policy: Post Mortem
Below is a diagram showing how an insurance policy is constructed:
First you have the CContractual Terms at the foundation. This is where all the
important clauses are listed, such as who the insured person is, the beneficiary of
the contract, commencement and maturity dates and the benefits covered. For
investment-linked policies, the insurance charges are also published in this
section.
On the side of the CContractual Terms is the RRiders section, where all additional
riders that you have chosen to complement with the core benefits will be listed.
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Smart Guide to Insurance Planning
Financial Strength
The figures in the table
below show the financial strength of life insurance companies in Malaysia between
2006 and 2007, from the company with the most assets to the company with the
least.
Company
Total Assetss/Liabilities
Net Investment
Income
2006 2007 20006 2007
GREAT EASTERN 26,268,129 29,129,564 1,323,861 1,409,251
AIA 12,323,742 13,936,311 578,918 631,558
ING 6,988,124 7,955,250 308,691 340,562
MAYBAN LIFE 4,555,982 6,341,045 163,290 203,316
PRUDENTIAL 5,117,795 6,296,464 227,755 269,646
MAA 5,295,228 5,805,002 233,715 231,338
MNI 4,066,873 4,309,470 241,088 194,850
HONG LEONG 3,596,802 4,145,516 155,239 183,335
ASIA LIFE 2,645,994 2,913,305 126,614 138,489
MCIS ZURICH 2,291,043 2,493,696 115,567 124,672
MANULIFE 1,873,493 2,186,097 86,385 96,648
COMMERCE LIFE 1,083,776 1,546,211 49,497 56,307
AMASSURANCE 1,164,754 1,430,621 56,926 67,791
ALLIANZ LIFE 1,050,017 1,298,405 38,438 49,543
UNI.ASIA LIFE 881,822 1,176,408 30,647 39,492
AXALIFE - 254,485 - 4,950
TAHAN 217,325 - 7,742 4,137
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Smart Guide to Insurance Planning
Critical Illnesses Explained
In this chapter, I will go through the 36 types of illness that are covered in most
critical illness policies in Malaysia. For your easy reference, there is a section
labeled FFurther Explanations for terms that are not so layman-friendly. Also, a
section labeled WWallet Damage! shows you the range of how much it would need for
treatment of each respective illness. Exclusion of each coverage is emphasized in
italics.
(1) Heart Attack
The death of a portion of the heart muscle (myocardium) as a result of inadequate
blood supply and being evidenced by:-
(a) A history of typical prolonged chest pain; and
(b) New electrocardiographic changes resulting from this occurrence; and
(c) Elevation of the cardiac enzyme (CPK-MB) above the generally accepted
laboratory levels of normal.
Diagnosis based on the elevation of Troponin T test alone shall not be considered
diagnostic of a heart attack. Angina is specifically excluded.
Wallet Damage!
Treatment for heart attacks can range anywhere from RM10,000 to RM30,000.
(2) Stroke
Defined as a cerebrovascular accident or incident producing neurological sequelae
of a permanent nature, having lasted not less than six months.
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Smart Guide to Insurance Planning
Infarction of brain tissue, hemorrhage and embolisation from an extra-cranial
source are included. The diagnosis must be based on changes seen in a CT scan or
MRI and certified by a Consultant Neurologist.
Specifically excluded are cerebral symptoms due to transient ischaemic attacks,
any reversible ischaemic neurological deficit, vertebrobasilar ischaemia, cerebral
symptoms due to migraine, cerebral injury resulting from trauma or hypoxia and
vascular disease affecting the eye or optic nerve or vestibular functions.
Further Explanation
Ischaemic Stroke: This type of stroke occurs when a blood vessel in the brain
develops a clot and cuts off the blood supply to the brain. A blood clot that forms
in a blood vessel in t A blood clot that forms in
another part of the body, such as the neck or lining of the heart, and travels to the
brain is called an embolus Blood clots often result from a condition called
atherosclerosis the build-up of plaque with fatty deposits within blood vessel
walls.
Source: www.clevelandclinic.org
An iischaemic stroke is the death of brain tissue (cerebral infraction) resulting from
an inadequate supply of blood and oxygen to the brain.
Vertebrobasilar circulatory disorders are disorders in which blood supply to the
back of the brain is disrupted.
Hypoxia: a shortage of oxygen in the body. Hypoxaemia is the reduction of oxygen
specifically in the blood; anoxia is when there is no oxygen available at all.
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Smart Guide to Insurance Planning
(3) Coronary Artery Disease Requiring Surgery
This refers to the actual undergoing of coronary artery by-pass surgery by way of
thoracotomy to correct or treat coronary artery disease but not including
angioplasty, other intra-arterial, keyhole or laser procedures.
Further Explanations
Thoracotomy: a procedure in which a chest wall is opened to view the internal
chest organ, to treat diseases of the lungs, heart or major arteries.
It is a major operation, and is only used when other diagnostic techniques such as
thoracentesis, bronchoscopy, or mediastinoscopy fail to provide adequate
information.
Angioplasty: Angioplasty is the mechanical widening of a narrowed or totally
obstructed blood vessel.
Keyhole: Technical advances now make it possible to perform surgery with smaller
incisions and less tissue disruption than occurs with traditional surgery. Surgeons
can insert tiny lights, video cameras, and surgical instruments through
keyhole-sized incisions. The surgeons can then perform procedures using the
images transmitted to video monitors as guides for manipulating the surgical
instruments. This kind of surgery is called laparoscopic surgery when performed in
the abdomen, arthroscopic surgery when performed in joints, and thoracoscopic
surgery when performed in the chest.
Wallet Damage!