My comment on insurance policy

I received the following email from a reader call Fong Kai:

Hello Peter,

RE: a loyal reader of your 'Competitive Malaysia' blog

My name is Fongkai and I must confessed your blog has impressed me so much that I thought I should ask for your opinion when it comes to financial management. I hope you can enlighten me with your knowledge about buying an insurance. From your stance this might be quite awkward, but I trust your experience and intelligent will be able to help people, like me to know about risk management. It happened that after I read-

financialplanningmalaysia.com

I havent got a clue as of what sort of policy i should go for. Term life seems to be feasible for now. But a whole-life policy should be a sound investment in the long term. An agent also informed me that to ask for a hospitalization claim as a term life policy holder will be somehow difficult. Point is I haven't got a clue as of to what extent the statement is being truthful.

My age now is 25 and only realized a sound financial management starts with risk management. I shall bevery grateful should you able to pass on your knowledge to me.

Thank you,


Fong Kai

Actually I have bad experience with insurance company. At the age of 25, your risk is low and premium is very low. Actually you do not need insurance unless your parent has retired.

When you grow older. You need insurance coverage if your spouse depend on you or for your children. However, your risk is higher, premium have to be higher.

When you are young, income is low. Premium you can afford is low. When you are older, income is higher, premium you can afford is higher.

Risk management is required when there is a risk. When your parent is not depend on you or your spouse is not depend on you. You do not required to insure.

Now, ex-Finance Minister Anwar Ibrahim has abolish Inheritant Tax. Thus, business owner also do not required to to insure their life for descendant to pay tax. Previouly, when a business owner pass away. The descendent need to have cash to pay to government for inheritant tax. Or, they have to disposed of their property(House) or part of their business. This cause business fall to other partners' hand. Thus, an insurance cover is required. But this no longer the case.

For accident, you have Socso. If you feel not secure. You can add some PA insurance on your own. However, Group PA is cheaper, a lot of company do buy a group PA for their whole employee. If your company have cover on this or your credit card company has cover for you. You do not need it either.

What we need is serious illness or what you said hospitalization. However, government is planning a National Health Policy. Thus, you might not required it after few years.

Unless your parent or your children depend on you. You do not have risk to cover.

Insurance against spouse is a risky move. In this uncertain world, you might get murder if you have such insurance like what appear on movies. You do not know whether your spouse got extra marital affair or not. Or he or she might need the money. You might get murder if your spouse have ulterior motive. Or have heavy debt with loan shark. Loan shark might master mind such murder. I really not advise people to buy life insurance unless is really necessary.

I heard a story that a father who went missing when he is on business trip. When the ship he take has sink like what happen to Titanic. After more than half year of missing. Government declare that he is death. Thus, their wife and children able to get a large sum of insurance claim. Children are happy as they able to buy a brand new computer, their dream toy etc.

However, their father actually is safe by a another ship and only in contact with them after 9 months. Thus, everybody is happy that their husband and father is save. But how they feel???They have to return the large sum of insurance they received. A happy event become ....Not very happy. Oh, why buy such insurance?

I have buy a life insurance policy before . With my financial knowledge. I choose a company that would not fail in 100 years (That is important. Imagine if the insurance company fail earlier than you) with good management and investment track record. The company is a blue chip company listed on oversea stock exchange now.

However, I venture to business once. When my business need finance. I borrow money from my policy. I went to the insurance company to enquire what is the maximum I can borrow. Let say they told me I can borrow RM9,460. However, their executive advise me to borrow RM9,000 only. The balance RM460, although not much. You unable to take back the money only unless you continue to pay your premium to continue your policy. I need money to finance my business then, thus I never continue to pay the policy and thus the policy lapse. Imagine, such a big company with good reputation, but they train their staff in such an unethical manner! What about other insurance company with less reputation?

I calculated after that RM9,460 is approximately of what I have pay over the years. Not even able to cover interest. But I take out only RM9,000 eventually. I make a loss in such investment.

Thus the above blog is correct that insurance is merely a risk management tool but definitely not an investment tool.

If you really want to buy an insurance. Identify your real "risk" area. Usually, if you are a boss and not cover by Socso, just get a Group PA for your whole company with a "reputable" company. Reputable mean they have a record of payment when accident occur and pay it fast. Not after few years of investigation.

If you need hospitalization policy. You might ensure you insured with reputable company as well. Company have bad payment record or delay in payment have to be excluded.

On tax planning. If you feel that your salary able to increase very fast. Where your 9% EPF employee portion would more that tax deductible ceiling. You unable to deduct your tax eventually as your EPF deduction has fully utilize such deduction. Only insurance for hospitalization and education is separately deductible from EPF. Of course, if you are low income earner, that is another case.

As every individual have different risk profile. Insurance requirement is different. For me, I feel I do not need a policy. You have to access yourself differently to suit your situation.

Update : Nanyang


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