Insurance can be confusing. The more insurance agents I talked to, the more confused I got. I spent some time delving deeper and realised it can be simple. Here are my distilled thoughts on insurance:
What Insurance You Need
There are many types of insurance, but most individuals will only need 2 types, described below in layman's terms:
1. Life Insurance: insurance company pays in event of critical illnesses/death. You/your beneficiaries get to spend the money.
2. Medical Insurance: insurance company pays for your medical bills in event of illnesses under coverage. Hospitals get the money. You don't get a single cent.
Some tips to help you make better decisions:
- 150x: benchmark for life insurance payout is 150 times of annual payment. Example, if you pay RM500 a month, that's RM6,000 a year. Benchmark payout would be RM6,000 x 150 = RM900,000
- 10x: another payout benchmark for life insurance would be 5-10x of your annual income. That gives you ample time to recover from major illnesses. Example, RM10,000 monthly income, benchmark would be RM600,000-RM1,200,000. Combining with the 150x benchmark, you should be paying a premium of around RM300-RM650/month.
- Max out medical insurance: depending on your age, a RM200-RM300/month medical card will give you high annual & lifetime limit. Include a no-rider plan if possible, that means you don't have to pay up to RM500 per bill trigger
- Tax-Relief: RM3,000 for life insurance & RM3,000 for medical insurance (as of 2019). They are separate. In other words, you're getting a discount on the premiums paid. Example, at the 24% tax bracket, you will be getting more than RM1,000 (24% x RM6,000) back from the government!
- Investment Returns: most insurance plans return 1% over the long term. Use your insurance plans as plain insurance, aka let the insurance company pay you and pay the hospital bills in event of critical illnesses/death. Invest your money elsewhere.
Trigger maximum tax relief, use the 150x & 10x benchmarks as a guide, get a good medical card. Not a penny more, not a penny less. ;)
The above are just some of my thoughts on insurance. To get professional advice, speak to a certified insurance agent. Although I highly suspect they will make it confusing. No worries though, armed with the tips & hacks above, you will be able to steer the conversation in the right direction.