Life Insurance FAQ

FREQUENTLY ASKED QUESTIONS

Here are a few things you will need to consider before purchasing a Life Insurance policy:

  • Risks that you wish to cover

    • While Life Insurance policies generally cover death, some policies cover more specific risks such as the early onset of a critical illness, accidental death and partial disability.
  • Your financial goals

    • They can be as specific as legacy planning for your children or saving for your retirement years. These goals should have specific time frames or investment horizon(s).
  • Your desired protection level

    This is generally based on factors like:

    • The number of dependents you have (e.g. retired parents, spouse, children)
    • Outstanding long-term financial commitments (e.g. housing loan, education fund)
    • Lifestyle / standard of living
    • Savings and investment assets
    • Projected cost of expenses in the future based on currency valuation and inflation (e.g. an education degree at a private university today may cost 50% more years down the road)
  • Your budget

    • The amount that you can set aside for Life Insurance after the deduction of expenses, commitments and savings. If budget is tight, you might want to consider cheaper alternatives such as term insurance so that your insurance policy does not lapse or get terminated.
  • Your risk appetite

    • Assess your risk appetite. Are you a conservative investor who prefers lower but consistent returns? Or perhaps you prefer high-risk investments, which may be volatile in the short term but provide capital appreciation over the longer term.

       

      Also, consider the main purpose of your insurance coverage. If protection is your main concern, it would be advisable to go down the conservative route as dynamic funds pose higher risks.

TRADITIONAL INSURANCE

Traditional Insurance offers protection where the premiums are payable throughout the duration of the insurance policy. The benefits payable are guaranteed, although some plans also offer non-guaranteed benefits such as cash bonuses.

  • Whole Life Insurance provides long-term protection. A lump sum benefit is payable upon Death or Total and Permanent Disability (TPD) of the Life Assured during the policy term, or upon maturity of the policy. It is generally available in different forms, i.e.

    • Participating plan: Plans that enable policy holders to share in the profits of the insurance company through its “participating fund”. Profits are paid out in the form of non-guaranteed cash bonuses and dividends subject to company’s actual declarations.
    • Non-participating plan: Plans that do not participate in the insurance company’s “participating fund”.
  • Term Insurance only provides protection for a fixed period of time, from as short as 5 years to 30 years or more. Since this does not come with any saving or investment feature, terminating it prematurely will not lead to any payable cash value. Upon Death or Total and Permanent Disability (TPD) of the Life Assured during the policy term, the policy will pay out the sum assured.

  • Endowment Insurance offers protection and savings for a fixed period of time. A lump sum benefit is payable at the end of the policy term, or upon Death or Total and Permanent Disability (TPD) of the Life Assured during the policy term. Some endowment policies may also pay out a yearly guaranteed cash benefit throughout the policy term, as long as the policy holder lives until the end of the policy term.

  • Annuity guarantees fixed payments at regular intervals (usually monthly), for as long as the Life Assured lives or for a fixed period of time. It is usually purchased to supplement income during the retirement years. The premium is usually payable as a lump sum but some plans do offer options for regular premium payments for a specified duration.

INVESTMENT LINKED INSURANCE

Insurance that combines protection and investment, where a portion of the premiums are used to invest in investment linked funds of your choice. The total benefits payable may include fund values which vary according to the performance and value of the underlying assets of the selected investment funds at that time. Investment linked insurance plans allow you to adjust the protection and investment levels according to your needs and goals.

  • Regular Premium Investment Linked Insurance which provides long-term protection and the opportunity to grow your investments. A lump sum benefit is payable upon death or Total and Permanent Disability (TPD) of the Life Assured during the policy term, or upon maturity of the policy. Generally, the lump sum benefit payable includes the sum assured and the total investment value of your policy.

  • Single Premium Investment Linked Insurance is designed primarily for investment purposes. This type of plans may not offer as much protection as regular premium investment linked insurance plans, but the premium allocation rates are much higher.

This refers to a percentage of the premiums paid that is set aside for investment into investment linked funds of your choice.

Some Life Insurance companies now include the ‘guaranteed insurability’ benefit by default into their investment linked insurance plans. This enables you easily increase your protection coverage during major life events without the need for underwriting (i.e. assessment of lifestyle, occupation and medical history). Life events may include marriage, having a child or buying a house.

You can opt to switch funds at any time to match your risk appetite, increase or decrease portfolio exposure to risky asset. Insurance companies generally offer a wide range of professionally managed investment linked funds including local funds and foreign funds that cater to the different risk appetites of customers.

No, because the prices of fund units depend on the market value.

No, it is not advisable to surrender your existing insurance plan if you decide to change the investment fund as you might end up getting less than what you have invested due to fees and charges. You may switch funds if it is allowed but you may be charged a processing fee.

Yes, you are allowed to top up on your existing investment linked fund at any time. You can also increase the coverage for death, critical illness, hospitalisation, accident and others.

There is no fixed period of time for you to hold on to your investment linked insurance plan although it is not advisable to hold it for a short period of time in view of the high initial costs.

MEDICAL AND HEALTH INSURANCE

Medical and health insurance covers medical and surgical related expenses such as the cost of hospitalisation, surgical fees and physician consultation fees. The premium rates are calculated based on your attained age, gender, occupation, health condition and the selected plan. They are not guaranteed and may be revised from time to time. This is due to the ever increasing number of medical claims and escalating medical costs.

  • Co-insurance / deductibles

    Here is what they mean:

    • Co-insurance – you pay a percentage of the incurred medical expenses, as stipulated under the terms and conditions in the policy. However, some plans may set a limit on the co-insurance payable; for example, 10% co-insurance on the medical bill, up to a maximum of RM 500.
    • Deductible – you pay a stipulated amount of the incurred medical expenses, the excess of which will be covered by the Life Insurance company. For example, if your plan has a deductible of RM 2,000, it means you pay the first RM 2,000 incurred in a medical bill while the insurance company covers the rest. If the medical bill is less than RM 2,000, the insurance company does not bear any cost.
  • Benefits – exclusions and limitations

    There are some exclusions and limitations. For example, selected illnesses that occur within the first 120 days from the commencement date of the policy or any medical event as a result of a pre-existing medical condition is not covered. Ask your servicing agent to go through the list with you.

  • Pre-existing medical conditions

    The insurance company’s decision to insure you is based on the information provided in the proposal form, medical examination report (if required) etc. Non-disclosure of critical information such as medical history may lead to non-payment of claims, especially when it is discovered that the claim event is linked to a pre-existing medical condition.

  • Premium rates

    Premium rates for medical and health insurance are not guaranteed and may be revised from time to time. This is due to the ever increasing number of medical claims and escalating medical costs. The premiums will also go up as you grow older.

  • List of panel hospitals

    Ask your servicing agent for the list of panel hospitals under the medical and health insurance policy.

  • Family vs. individual coverage

    Some Life Insurance companies offer discounts when you sign up for two or more policies for your loved ones.

‘Guaranteed renewal’ means that the Life Insurance company guarantees the renewal of the policy, subject to the terms and conditions specified in the policy. The premiums payable, however, is not guaranteed nor fixed.

 

  • In practice, the renewal of the policy is guaranteed until/unless certain events have occurred, such as:

    • You did not pay your premiums or did not pay them on time;
    • You misrepresented a material fact, for example age or a medical condition, during your application;
    • You canceled the policy;
    • The total claims under the policy have reached the overall limit specified; or
    • You have reached the age limit for coverage at the point of policy renewal.

BUYING AN INSURANCE POLICY

  • Deal only with registered agents

    Life Insurance agents who are registered with the Life Insurance Association of Malaysia (LIAM) are required to pass a pre-contract examination that is conducted by the Malaysian Insurance Institute (MII). They can only represent one Life Insurance company and provide advice on the products marketed solely by that company. Always insist on seeing his/her authorisation card that is issued by LIAM. You can check the status of the agent via the LIAM website or via Short Message Service (SMS).

  • Know your rights

    If you intend to purchase a Life Insurance product from Life Insurance agents, you can ask for a copy of the insurance company’s service guide. It is a simple checklist detailing the obligations and value-added services that an agent provides at the following stages – before you buy a policy, when you decide to buy a policy and during the term of the policy.

  • Understand the product well

    Do not be tempted by verbal promises or guarantees of high returns. Insist on product-related documents such as Sales Illustration, Product Disclosure Sheet and/or fund performance reports before committing to buy a Life Insurance policy.

  • Disclose required information

    Insurance companies have put in place an underwriting process to determine what type of risk you are to the insurance company and for the company to decide whether or not to accept the risk.

    The risk of death or a critical illness is determined by several factors such as age, gender, lifestyle habits, personal and medical history, occupation etc. You would probably come across these terms:

    • Standard Life – It generally means you do not have any serious medical condition, or you hold a low-risk occupation. You are charged standard premium rates.
    • Sub-standard Life – It generally means you have pre-existing medical condition(s), or you hold a high-risk occupation. As a person with a higher than average risk, you would either have to pay additional premium (also known as premium loading) or agree for certain exclusions to be included in your policy. In some cases, the insurance company may reject your policy application if they deem you to be an uninsurable risk.

     

    You must truthfully disclose information that is required in the proposal / application form. If you are unsure about disclosing certain information, it is recommended that you disclose it anyway. This includes any information that you may have given to your agent but was not included in the proposal form. The insurance company’s decision to insure you is based on the information provided in the proposal form, medical examination report (if required) etc. Non-disclosure of critical information such as medical history may lead to non-payment of claims, especially when it is discovered that the claim event is linked to a pre-existing medical condition.

  • Practise caution

    Make sure that the proposal form is filled in properly. Do not sign blank or incomplete forms. If you spot any inaccurate or missing information, ask for the form to be amended immediately. Do not release your identity card or credit card details to someone you do not know or without first clarifying why it is needed.

    If for whatever reason you decide to pass a cheque to your servicing agent to pay for your Life Insurance premiums, it is recommended that you refrain from doing so. Agents, even honest ones, can forget to pay for your policy; which may cause your policy to lapse after the grace period is up. Instead, opt for secure and convenient payment methods such as direct debit deduction.

Life Insurance is traditionally sold through company-appointed intermediaries such as agents, brokers and bancassurance partners. As professional financial planners, they are equipped with the relevant knowledge to advise and guide you in your purchase of a Life Insurance policy. In recent years, Bank Negara Malaysia has mandated all insurance companies, through the Life Insurance and Family Takaful Framework, to set up direct purchase channels for Life Insurance products. This means that you are given an option to purchase Life Insurance online or over the branch counter. Most insurers offer simple term Life Insurance products through direct purchase channels; and there are plans to add on other types of products in the future.

A sales illustration is not a legal document. The legal obligations of a Life Insurance policy are spelled out in the policy document.

You can cancel your Life Insurance policy within the 15-day ‘free look period’ by returning the policy to the insurance company after you have received the policy document. The total premiums paid will be fully refunded to you.

Since buying a Life Insurance policy is a long-term commitment, it is not advisable to terminate your policy early because the surrender value is usually less than the total premiums paid. You might also be charged with a higher premium since you are older now. Depending on your health condition, you might be seen as a person with higher risk and that could affect your new policy.

There is a ‘grace period’, which gives you an additional period of time after the premium payment due date. During this period, you can still pay your premium and your policy still continues to be in-force. For the monthly mode of payment, the grace period is usually 15 days, while for other modes of payments (semi-annually or annually), it is usually 30 days. If your Life Insurance policy has lapsed, you may revive or reinstate it within a period of time and under certain conditions such as the declaration of your state of health at the time of reinstatement.

  • Traditional Life Insurance with Cash Value

    Your Life Insurance policy may acquire a cash value after being in-force for a number of years (normally a minimum of three years). The cash value is the ‘savings’ portion of the policy. Cash value is accumulated when your premium payments are more than the cost of insurance, so the excess goes into a cash value account and draws interest. If you decide to surrender your Life Insurance policy, the cash value, also known as surrender value, will be payable. You will suffer a loss if you surrender your policy before the maturity of the policy.

  • Investment linked Insurance

    When you terminate your investment linked insurance policy, you will receive the investment value of your policy at the time of termination. As it is calculated based on the market value of the remaining fund units in your policy’s investment account, you may get back less than the total premiums paid.

Speak to your servicing agent about the options available.

  • Traditional Life Insurance with Cash Value

    The Life Insurance company can often make changes to ensure that your Life Insurance policy can remain in-force without further premium payments. A common option includes conversion of your policy into paid-up policy which involves reducing the initial sum assured or reducing the policy term through utilizing the remaining cash value.

  • Investment Linked Insurance

    As a portion of the premiums paid is invested into investment funds of your choice, your investment linked insurance policy will accumulate an investment value over time. If the investment value of your policy is substantial, your policy will continue to remain in-force as long as there is sufficient value to pay for the insurance charges, policy fee and supplementary benefit premiums, where applicable. However, there is no guarantee as to how long the policy will remain in-force as the investment value is dependent on the market value of the remaining fund units in your policy’s investment account.

    You may elect to reduce your sum assured in an effort to reduce the insurance charges and prolong the policy term.

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