A common yet important question is on the 1st insurance policy to get for yourself or your children. “What do I really need for my first insurance policy? How much will it cost me? What if I am on a very tight budget for insurance?”

Before buying your 1st insurance policy, you should ensure that you have an emergency savings of at least 3 months expenses prepared. This means, if you need RM3000 per month, you should have at least RM9000 in your emergency savings. You also need to look at your budget & cash flow. A basic guideline is that your total insurance costs should not be more than 10% of your total income.

Recommended 1st Insurance Policy

A complete insurance coverage is very affordable if purchased while young & healthy. Here are some things you need to take note:

Life insurance coverage is stated in Basic Sum Assured (BSA) which covers death & total permanent disability (TPD). This covers for any causes of death – subject to exclusions. (A Personal Accident coverage only covers for causes due to accidents).

Medical coverage would provide for hospitalization & surgical costs. This is paid to the hospital & doctor directly. Most medical coverage is cashless & you only need to show your medical card to the panel hospital. There are often special rates as well for using a medical card from an insurance provider. Click here to know more about medical coverage.

Critical Illness (CI) coverage would provide a sum payment on diagnosis of any 36 CI helping you to cover costs that are not provided in medical coverage & give you flexibility in terms of seeking additional/alternative medical treatment. Do note that this money from CI is paid to you and not to the hospital! (There is also Early CI coverage)

If you are working, the amount of life coverage (BSA) that you require would be 5 years of your annual income. Use half the amount for Critical Illness (CI) coverage required.

For example, if you earn RM60k per year, you require RM300k life coverage and RM150k Ci coverage.

For medical, the main difference would be determined from Room & Board (R&B) coverage. If you are not picky about your room & sharing with others, starting from R&B 150 coverage would suffice for a 1st policy. The other determining factor would be on co-insurance. Co-insurance would mean that you share in 10% of the total medical costs (usually max capped quite low i.e. 500). Take note of the annual & lifetime claim limit (medical cost inflation is more than 10% per year­). If your budget allows, a R&B 200 plan would be recommended for medical hospitalization coverage.

If you are not working, the amount of life coverage (BSA) that you require would be 10 years of your annual expenses. Get half the amount for Critical Illness (CI) & at least R&B 150 for medical coverage. If you’re unsure about your expenses, a good starting point would be to use RM100k for life coverage (BSA), RM50k for CI & R&B 150 for medical.

Riders

Everything apart from the basic policy is considered a rider (or attachment). A good rider would be a premium waiver whereby you would not need to pay for insurance costs any more in the case of TPD and/or CI. This would reduce expenses if anything unfortunate happens. Most of the other riders are not necessary unless it is something that you really need.

On a Limited Budget

If you are on an extremely tight budget, we would recommend a Personal Accident (PA) coverage & a term medical coverage.

However, a PA would only provide coverage for accidents resulting in death or permanent disability. Most policies also provide double indemnity for public conveyance. This means you get double your insurance coverage amount if you die or are permanently disabled in public transportation (e.g. bus, MRT, public plane).

A term medical coverage provides medical coverage for a period of time (usually one year).  A term medical coverage provides a low entry cost into medical coverage. However, a term medical coverage is not very customizable and has no value after the coverage term expires. The premium increases along with your age. Do ensure that the insurance provider’s coverage is guaranteed renewable every year.

 

Participating VS Non-Participating Insurance Plan

A participating life insurance policy receives dividend payments from the insurance company, meaning you share in the profits.

A non-participating plan does not share nor receive profits from the company.

Check out All You Need to Know About Medical Insurance