Guide To Smart Insurance Planning Preview

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 NEGA5$·6$118$/,1685$1&E REPORT ................................. 65

CRITICAL ILLNESSES EXPLAINED ............................................................................ 72

ABOUT THE AUTHOR ...........................................................................................105

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Smart Guide to Insurance Planning

Comprehensiveness of Coverage

:KHQLWFRPHVWRPDQDJLQJSHUVRQDOULVNWKHUH·VDYHU\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. ,QWKLVVHQVHLW·VYHU\VLPLODUWRWKHULVN\RXDUHH[SRVHGWRHYHU\ day; you never knRZZKHQ\RX·OOEHVWHSSLQJLQIURQWRIDQRQFRPLQJWUXFN

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 9

Smart Guide to Insurance Planning


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

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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.

Estimated Yearly Premium (RM)

Age

Female

Male

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.

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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 (QGRZPHQW3ROLF\ZLOOEHSDLGRXWLQWKLVFDVHWRWKHIDWKHU/HW·VVD\LIWKHfather passed on first, suffered from TPD

or

Critical

was Illness,

diagnozed the

with

insurance

company would sponsor the child until the policy matures.

For the above scenarios, you should refer to the insurance cRPSDQLHV·UHVSHFWLYHriders 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?

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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 RWKHU ILQDQFLDO SURGXFWV LW·V 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.

:KDW·VDQLQYHVWPHQW-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 LW·V YHU\ difficult to change WKH SXEOLF·V PLQGVHW RQFH WKH\·YH decided about something. Whenever the unit trust industry preaches about the potential returns, the public

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Smart Guide to Insurance Planning

Starting from the right, we have Personal Accident insurance, one of the most affordable and also the most important coverage in a risk management portfolio.

Next, we have Medical and Hospitalization benefits. A medical card can be very handy these days, especially with the rising cost of health services.

Further left, we have Whole-life Insurance, Critical 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 Endowment Plan, the least important insurance policy-. This does not mHDQWKDWLW·VDEDGproduct. 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

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Endowment Plan

Critical Illness

Policy Type

12-year 15-year 18-year 21-year 24-year 27-year 30-year

Up to 87 years old

Contract Terms

Common Benefits

Payor Benefit

Waiver of Premium

36 Critical Illnesses

Total Permanent Disability Benefit

Death Benefit

An Overview of Insurance Policies (cont'd)

Policy focuses on generating cash value and providing minimal insurance benefit. Premium invested in company at minimal risk.

Policy immediately void after claim made.

Comes with cash value. Premium invested in company at minimal risk.

You can apply for Policy Loan - can give you loan amount of up to 90% of your existing cash value. Loan interest rate considerably lower than that of prevailing bank loans.

You can choose to withdraw money every 3 years but doing so reduces total payout when endowment plan matures.

Waiting period of 60 days usually applicable, so only claimable for covered events 2 months after policy inforce.

Quick Facts

Cash Value & Corresponding Risk

Smart Guide to Insurance Planning

Insurance Policy: Post Mortem

Below is a diagram showing how an insurance policy is constructed:

First you have the Contractual 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 Contractual Terms is the Riders 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 /HW·VVWDUWE\ILQGLQJRXWHDFK,QVXUHU·VILQDQFLDOVWUHQJWKThe 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.

Net Investment Total Assets s/Liabilities Income 50¶

Company

50¶ 2006

2007

200 06

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 Further Explanations for terms that are not so layman-friendly. Also, a section labeled Wallet 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 tKH EUDLQ LV FDOOHG D ¶WKURPEXV· 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 ischaemic stroke is the death of brain tissue (cerebral infraction) resulting from an inadequate supply of blood and oxygen to the brain. 6RXUFH7KH0HUFN·V0DQXDO6HFRQG+RPH(GLWLRQ

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. 6RXUFH7KH0HUFN·V0DQXDO6HFRQG+RPH(GLWLRQ

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!

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