No matter what’s your age or how much income you earn every month, basically everyone needs insurance. Unfortunately, majority of Malaysians today don’t have enough insurance coverage because they simply don’t know how much insurance coverage they need.
Being underinsured, while better than being not insured, is still an unsafe situation that can hurt you financially in the event of some unfortunate accident happens.
Young people today in their 20s and 30s are particularly vulnerable to being underinsured or not insured at all, which is risky because these are the years when you should be getting enough insurance coverage to protect your future funds!
First, let us understand what life insurance is all about. Life insurance is what gives you and your family protection against death, total permanent disability (TPD) and critical illness.
Now, let see the types of insurance plans available in the market today:
WHOLE LIFE PLANS
With these plans, you get lifelong protection as long as premiums are paid. Most of such plans build cash values that can be withdrawn in the form of policy loan in case of an emergency. “Riders” to cover for illness and total permanent disability can be added to basic plans which will be waived if you met with critical illness or TPD.
With this, you get protection for a fixed period. It pays the sum assured only if you die or become totally or TPD during that period. Term insurance has no surrender value when the policy ends or terminates prematurely. However, the cost of this type of coverage is usually lower than that of a whole life plan. Term insurance usually comes in terms of five to forty years and is renewable when each term ends.
It is aimed at building up your savings over a permanent policy term. The policy pays the sum assured and any bonuses you have built up at the end of the policy term, or when you die or become totally or TPD during the policy term. Depending on your needs, an endowment policy can serve as an all-purpose savings plan, a children’s education savings plan or a retirement plan
INVESTMENT-LINKED INSURANCE PLANS (ILP)
Such plans invest in different investment instruments while providing you with optional insurance coverage that you can vary according to your needs. This type of policy will combine saving, investment and medical coverage into one plan.
So how do you really calculate the amount of insurance coverage needed? To know the amount, we need to consider a few things as below:
You need to consider your monthly expenditure and monthly income first to make an estimate amount needed annually and times it with number of years you will survive or your family needs. Long term saving goals also need to be considered, including money needed after retirement and children’s education.
Let’s look at an example below:
Let’s assume John is a working adult age 30 years and married with one kids. His monthly income is RM4,000 and his monthly expenditure (includes his car loan, mortgage loan, household expenditure, food and etc) is RM3,000. If let’s say he met with an accident which puts him in TPD condition which may cause him to lose his job. Now let calculate his estimate coverage needed to support his living without any income coming in.
Yearly expenses: RM36, 000
Estimate number of years and amount needed to support his family (30 years): RM1,080,000
So the estimate minimum level of insurance protection needed is around RM1 million.
Now the above amount doesn’t include inflation rate, additional medical cost, and child’s education cost and so on.
Thus, from the above example we may conclude that the estimated life insurance protection coverage for John’s family is equivalent to about 22 times the annual income. Even if he have some savings in bank or invest in unit trust, it would not be enough to cover his expenses.
So before you decide to put all of your money into savings or investments, it’s is better to just remember that all it only takes a single accident to clear out your savings. Don’t take the risk of assuming nothing will ever happen to you. Get an insurance proposal today and purchase an insurance policy that will make financial risk transferred to an insurance company!
So is your insurance protection coverage enough to support you and your family during emergency? If you’re not sure, then talk to us today and we will guide you.