How does life insurance in Malaysia work?

We have looked at a few life insurance articles now, namely:

• The difference between Takaful and life insurance
• What does life insurance really cover?
• Why you should get life insurance
• The difference between medical and life insurance and medical insurance
• Life insurance companies in Malaysia

Adding to our life insurance series, we will now take a look at how life insurance works in Malaysia.

In simplest terms, you are the policyholder and the insurance company that you decide to go with is the insurer. The policyholder is required to pay the insurer an arrangement amount at regular intervals (monthly) or in a lump sum. This is known as the premium. The premium is paid into a fund that is managed by the insurer. In return, when the policyholder suffers disability, critical illness, or death, the insurer will pay out a pre-determined amount of money to the policy holder (if applicable in the instance of disability or critical illness) or to the policy holder’s nominees (in the event of death).

Picking the right policy for you

There is no one-size-fits-all with insurance and the “right” policy is one that fits your needs best. Each individual applying for insurance – whether it is education, protection, medical, life or retirement – will have different needs throughout their different stages of life.

In order to pick the right policy for you, you will need to know your needs.

• Are you looking for insurance to ensure you will still have income in the event of a death or disability?
• Do you want to be insured in the event you become critically ill?
• Are you looking to insurance as a form of savings or investment?
• Perhaps it is for your children’s future education?
• Or for your own retirement once you are no longer working?

The second most important factor when picking insurance is by knowing your budget and affordability. When purchasing life insurance, you will be required to pay a monthly premium. The amount of coverage you receive will depend on the monthly premium you can afford; therefore, it is best to purchase life insurance according to your financial appetite.

The types of life insurance available

With life insurance policies, you can opt for the ones that offer a share of profits or those that do not. Plans that do not share profits are relatively cheaper.

Whole Life insurance provides payment of the sum only upon the death of the policyholder. This is best for those whose main concern is to provide their family with the best possible provision in the event of his/her death because a large pay-out can be provided at relatively affordable premiums, compared to an Endowment plan.

Endowment Life insurance provides both savings and protection at the same time during the term of the policy. You can have an endowment plan for varying periods, from 10 years and above, or up to a certain age. A sum of money and any bonuses earned will be paid upon the death of the policyholder within the term of the policy. If you survive the term of the policy, you will receive the sum and bonuses earned once the policy term is over.

Term Life insurance is assurance that is available for a specified period only, and the sum is payable only on the death of the policyholder during that period. If you survive the term, you will not receive any payout, even though you have paid all your premiums. This provides the maximum immediate cover at the lowest cost.

Investment-linked Life insurance combines investment and protection whereby you can allocate your premiums towards an investment fund of your choice to grow your returns. This option provides you with savings and wealth preservation.

How does your insurance policy kick in when something occurs to you?

It’s important to note that in Malaysia there are considerations for Muslim and non-Muslim policyholders.

A non-Muslim policyholder can nominate a person(s) to receive the money upon his/her death. You are advised to nominate a Trustee to administer the policy money for your nominees. If the nominee is a spouse, child or parent, a trust shall be created automatically. A Muslim policy holder’s nominee will act as an executor. He/she shall distribute the policy money in accordance with Islamic law.

If you, unfortunately, suffer a disability or critical illness, the insurance company will pay you upon total and permanent disability or diagnoses of a critical illness. However, you will need to notify the life insurance company and provide evidence of your claim.

Options you have if you cannot afford to pay your monthly premiums

If you encounter financial difficulty and find that you are unable to continue paying your monthly premiums, you have options. However, this serves as a guide and we suggest you speak to your insurance company to discuss your options in details.

1. You can keep the policy active by using an option called ‘non-forfeiture loan’, which basically utilises the cash value that your insurance has acquired to pay the premiums. Once the cash value is exhausted, your policy will then lapse.
2. Alternatively, you can convert your policy to a ‘paid-up policy’ where the insurance policy and sum assured is active up to the last payment you have made. You will not need to make any more premium payments, but the validity is only up until the amount paid which obviously then reduces the sum you are insured for.

Getting life insurance is one of the more important choices in life as you decide on a plan that will best protect you and your loved ones. Be sure to make this choice carefully and consider all options.

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