Before even buying your first insurance policy, you would want to ensure that you have emergency savings of at least three months’ expenses set up first.
You also need to look your budget and cash flow whereby your total insurance costs should be not more than 10% of your total income.
Note: Not more means that it can be well below 10%. Get what you need not based on what you can buy.
What do you really need in your first insurance policy? How much will it cost you? What if you are on a tight budget?
These are the common yet important questions when getting your first insurance policy for yourself or your children.
Recommended first insurance policy
Obtaining complete life insurance coverage with medical and critical illness is the best. It is very affordable if you purchase it while you’re young and healthy.
Life insurance coverage is stated in Basic Sum Assured (BSA) which covers death and total permanent disability (TPD). Coverage includes any causes (unlike Personal Accident coverage which only covers for causes due to accidents).
Medical coverage provides for hospitalisation and surgical costs. This is paid to the hospital and doctor directly. Most medical coverage is cashless, and you only need to show your medical card to the panel hospital.
There are often special rates for using a medical card from an insurance provider.
Critical Illness (CI) coverage would provide a lump sum payment on diagnosis of any 36 CI to help you cover costs that are not provided in medical coverage.
It also gives you flexibility in terms of seeking additional/alternative medical treatment and other expenditure required.
Take note that the money from CI goes to you and not the hospital.
If you are working
Use the equivalent of five years of your annual income for life coverage (BSA), and use half the amount for Critical Illness (CI) coverage.
For medical, the main difference would be determined from Room and Board (R&B) coverage. If you are not picky about your room and do not mind sharing with others, R&B coverage of RM150 would suffice for a first policy.
The other determining factor would be on co-insurance. Co-insurance means that you share 10% of the total medical costs (usually the maximum capped is quite low i.e. RM500) but your overall medical costs would be lower.
Furthermore, you would also want to know the annual and lifetime claims limits as medical cost inflation is rising at 10% above per year.
If your budget allows, a R&B of RM200 would be recommended as a current good value point for medical hospitalisation coverage.
If you are not working
Use the equivalent of 10 years of your annual expenses to determine your life coverage (BSA), half the amount for Critical Illness (CI) and at least RM150 for Medical R&B.
If you’re unsure of the expenses and calculation, a good starting point would be to use RM100,000 for life coverage (BSA), RM50,000 for CI and RM150 for Medical R&B.
Everything apart from the basic policy is considered a rider (or attachment). A good rider would be a premium waiver whereby you don’t have to pay for insurance costs any more in the case of Total Permanent Disability (TPD) and/or CI.
This would reduce expenses if anything unexpected happens. Most other riders are not strictly necessary unless it is something that you really need.
Example of costs
BSA RM100,000, CI RM50,000 & Medical R&B RM150 with co-insurance
· Male, 20: RM150 per month (RM1,800 per annum)
· Female, 20: RM125 per month (RM1,500 per annum)
BSA RM100,000, CI RM50,000 & Medical R&B RM150 without co-insurance
· Male, 20: RM150 per month (RM1,800 per annum)
· Female, 20: RM175 per month (RM2,100 per annum)
On a limited budget
If you are on a tight budget, the policies that provide the most bang for the buck would be Personal Accident (PA) coverage and term medical coverage.
Most life insurance policies provide coverage of roughly 1,000 times of the monthly premium.
Meanwhile, a PA policy would provide coverage of approximately 10,000 times of the annual premium payment.
However, a PA policy would only provide coverage in specific areas such as accidents resulting in death or permanent disability.
Most policies also provide double indemnity for public conveyancing. Hence, you get double of your insurance coverage amount if you die or are permanently disabled in public transportation (e.g. bus, MRT).
· Costs from RM100 per year for RM50,000 coverage (male or female class 1 and 2)
· Costs from RM160 per year for RM50,000 coverage (male or female class 3)
A term medical coverage will get you the second policy at a reduced rate.
A term medical coverage provides medical coverage for a period of time (usually one year) and provides a low entry cost into medical coverage.
However, a term medical coverage is not customisable, has no value after the coverage term expires and can significantly go up as one ages.
Ensure that the insurance provider’s coverage is guaranteed renewable every year.
Term Medical Coverage Cost
· Male, 20: RM526 per year (class 3 for RM658)
· Female, 20: RM460 per year (class 3 for RM575)
· Male, 30: RM521 per year (class 3 for RM651)
· Female, 30: RM539 per year (class 3 for RM674)
This article first appeared in https://mypf.my
MyPF is on a mission to help simplify and grow Malaysians’ personal finances through financial education.