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Smart Guide to Insurance Planning

Table of Contents

PREFACE ................................................................................................................ 3

INTRODUCTION ..................................................................................................... 6

COMPREHENSIVENESS OF COVERAGE ...................................................................... 9

PERSONAL ACCIDENT INSURANCE......................................................................... 11

MEDICAL & HOSPITALIZATION INSURANCE ............................................................ 15

THE CRITICAL ILLNESSES POLICY ........................................................................... 20

THE ENDOWMENT POLICY .................................................................................... 28

WHOLE LIFE INSURANCE POLICY ........................................................................... 34

INVESTMENT-LINKED INSURANCE POLICY ............................................................. 39

SUMMARY OF INSURANCE POLICIES ...................................................................... 48

OVERVIEW OF INSURANCE TYPES .......................................................................... 51

10 GENERAL INSURANCE TIPS AND ADVICE ........................................................... 61

SUMMARY OF BANK NEGA5$·6$118$/,1685$1&E REPORT ................................. 65

CRITICAL ILLNESSES EXPLAINED ............................................................................ 72

ABOUT THE AUTHOR ...........................................................................................105

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Smart Guide to Insurance Planning

Comprehensiveness of Coverage

:KHQLWFRPHVWRPDQDJLQJSHUVRQDOULVNWKHUH·VDYHU\suitable analogy- home

security. There are a few facts that we need to know when it comes to setting up a

burglar-proof home security system.

First, we do not know which door or window the burglars will break in from. If we

have something they really want, they might even dig a tunnel right into our safe.

,QWKLVVHQVHLW·VYHU\VLPLODUWRWKHULVN\RXDUHH[SRVHGWRHYHU\ day; you never

knRZZKHQ\RX·OOEHVWHSSLQJLQIURQWRIDQRQFRPLQJWUXFN

A good home security system takes into account every potential break-in channel.

Every door and window in the entire building that might give the burglar entry into

the house is protected, leaving nothing to chance.

So, if a good security system keeps your windows and doors from burglar

infiltrations, what should your insurance policies do to ensure your personal risk is

well taken care of? In the next few chapters in this guide, I would like to share with

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Smart Guide to Insurance Planning

<RXVKRXOGUHIHUWR\RXUSROLF\·VDFWXDOVFKHGXOHRIEHQHILWVWRILQGRXWWKHH[DFW

figures. The annual & lifetime limits are deducted as you make claims.

Co-insurance is a commonly used phrase in medical insurance packages. It simply

means that you as the policyholder need to pay a certain percentage from the total

claims made.

For instance, if you are hospitalized for 3 days, and use up a total of RM 6,780.24.

Assume that the co-insurance of your medical package is 10% with a cap of RM 500,

you will need to pay out:

RM 6,780.24 x 10% = RM 678.02

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Smart Guide to Insurance Planning

Case Study

For a healthy, non-smoking individual who subscribes to an RM 200 Room & Board

medical plan, with an annual limit of RM 120,000 and lifetime limit of RM 400,000,

the table below shows the premium amount for different age groups.

Estimated Yearly Premium

(RM)

Age Female Male

25 580 564

35 588 566

45 906 909

55 1,463 1,294

65 2,960 2,824

According to the table above, a 35-year-old male would need to pay a yearly

premium of RM 566.

The next section talks about the importance of Critical Illnesses coverage, and why

it is important in your risk management strategy. Unlike the medical plan coverage

mentioned here, Critical Illness coverage is where all the common ¶big-tickets·

illnesses are covered.

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Smart Guide to Insurance Planning

As witih any whole-life policies with cash value, you can also apply for a policy

loan.

(2) The Insurance Component

The insurance component is also fairly straightforward. In the event of Death or

Total Permanent Disability (TPD), you will be paid the Insured Amount. However, if

you are diagnosed with Critical Illness, the premium of the endowment policy will

continue to be paid by the insurance company.

In the case of the father setting up the endowment policy for his child, the

insurance component would work slightly differently. If the child should pass on

first or suffers from TPD, the same thing applies- the Insured Amount stated in the

(QGRZPHQW3ROLF\ZLOOEHSDLGRXWLQWKLVFDVHWRWKHIDWKHU/HW·VVD\LIWKHfather

passed on first, suffered from

TPD or was diagnozed with

Critical Illness, the insurance

company would sponsor the child

until the policy matures.

For the above scenarios, you

should refer to the insurance

cRPSDQLHV·UHVSHFWLYHriders that

are attachable to the endowment policy, as well as understand the terms and

conditions to fully take advantage of the policy.

Why an Endowment Policy?

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Smart Guide to Insurance Planning

Investment-linked Insurance Policy

Many insurance companies in

Malaysia have begun to phase

out conventional whole-life

policies in favor of this new risk

management tool. And like any

RWKHU ILQDQFLDO SURGXFWV LW·V

best that we understand a little

history on how this product

came about and why it would

seem to be a force to reckon

with.

:KDW·VDQLQYHVWPHQW-linked policy?

An investment-linked policy (ILP) is sometimes also known as a unit-linked

insurance policy or variable life insurance policy. In the Malaysian context, I will

just stick to the term ¶investment-linked·.

An ILP is basically a hybrid of 2 financial products- a unit trust and the good old

insurance contract. Why did the insurance industry decide to clone such a beast in

the first place?

Consider this scenario: not too long ago, the unit trust industry was born. But

before anyone knew anything about it, everyone had already accepted the idea of

saving and accumulating their wealth in their insurance policies. And LW·V YHU\

difficult to change WKH SXEOLF·V PLQGVHW RQFH WKH\·YH decided about something.

Whenever the unit trust industry preaches about the potential returns, the public

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Smart Guide to Insurance Planning

Starting from the right, we have Personal Accident insurance, one of the most

affordable and also the most important coverage in a risk management portfolio.

Next, we have Medical and Hospitalization benefits. A medical card can be very

handy these days, especially with the rising cost of health services.

Further left, we have Whole-life Insurance, Critical Illness Insurance and

Investment-linked Insurance stacked together. These policies are equally

important. With the introduction of Investment-linked insurance, you can now add

various types of riders into the policy, making it a very versatile risk management

tool.

On the far left is the Endowment Plan, the least important insurance policy-. This

does not mHDQWKDWLW·VDEDGproduct. It is labeled this way in relation to the other

products on the right, which you should prioritize. This is just a guideline, and you

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An Overview of Insurance Policies (cont'd)

Contract Common Cash Value & Quick


Policy Type
Terms Benefits Corresponding Risk Facts

Up to 87 years old Death Benefit Comes with cash value. Premium Policy immediately void after claim made.
invested in company at minimal risk.
Total Permanent Disability Benefit Waiting period of 60 days usually
applicable, so only claimable for covered
36 Critical Illnesses events 2 months after policy inforce.

Critical Illness

12-year Waiver of Premium Policy focuses on generating cash You can choose to withdraw money every
15-year value and providing minimal 3 years but doing so reduces total payout
18-year Payor Benefit insurance benefit. when endowment plan matures.
21-year Premium invested in company at
24-year minimal risk. You can apply for Policy Loan - can give
27-year you loan amount of up to 90% of your
30-year existing cash value. Loan interest rate
considerably lower than that of prevailing
bank loans.
Endowment Plan
Smart Guide to Insurance Planning

Insurance Policy: Post Mortem

Below is a diagram showing how an insurance policy is constructed:

First you have the Contractual Terms at the foundation. This is where all the

important clauses are listed, such as who the insured person is, the beneficiary of

the contract, commencement and maturity dates and the benefits covered. For

investment-linked policies, the insurance charges are also published in this

section.

On the side of the Contractual Terms is the Riders section, where all additional

riders that you have chosen to complement with the core benefits will be listed.

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Smart Guide to Insurance Planning

Financial Strength

/HW·VVWDUWE\ILQGLQJRXWHDFK,QVXUHU·VILQDQFLDOVWUHQJWKThe figures in the table

below show the financial strength of life insurance companies in Malaysia between

2006 and 2007, from the company with the most assets to the company with the

least.

Net Investment
Total Assets
s/Liabilities
Income
Company 50¶
50¶

2006 2007 200


06 2007

GREAT EASTERN 26,268,129 29,129,564 1,323,861 1,409,251

AIA 12,323,742 13,936,311 578,918 631,558

ING 6,988,124 7,955,250 308,691 340,562

MAYBAN LIFE 4,555,982 6,341,045 163,290 203,316

PRUDENTIAL 5,117,795 6,296,464 227,755 269,646

MAA 5,295,228 5,805,002 233,715 231,338

MNI 4,066,873 4,309,470 241,088 194,850

HONG LEONG 3,596,802 4,145,516 155,239 183,335

ASIA LIFE 2,645,994 2,913,305 126,614 138,489

MCIS ZURICH 2,291,043 2,493,696 115,567 124,672

MANULIFE 1,873,493 2,186,097 86,385 96,648

COMMERCE LIFE 1,083,776 1,546,211 49,497 56,307

AMASSURANCE 1,164,754 1,430,621 56,926 67,791

ALLIANZ LIFE 1,050,017 1,298,405 38,438 49,543

UNI.ASIA LIFE 881,822 1,176,408 30,647 39,492

AXALIFE - 254,485 - 4,950

TAHAN 217,325 - 7,742 4,137

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Smart Guide to Insurance Planning

Critical Illnesses Explained

In this chapter, I will go through the 36 types of illness that are covered in most

critical illness policies in Malaysia. For your easy reference, there is a section

labeled Further Explanations for terms that are not so layman-friendly. Also, a

section labeled Wallet Damage! shows you the range of how much it would need for

treatment of each respective illness. Exclusion of each coverage is emphasized in

italics.

(1) Heart Attack

The death of a portion of the heart muscle (myocardium) as a result of inadequate

blood supply and being evidenced by:-

(a) A history of typical prolonged chest pain; and

(b) New electrocardiographic changes resulting from this occurrence; and

(c) Elevation of the cardiac enzyme (CPK-MB) above the generally accepted

laboratory levels of normal.

Diagnosis based on the elevation of Troponin T test alone shall not be considered

diagnostic of a heart attack. Angina is specifically excluded.

Wallet Damage!

Treatment for heart attacks can range anywhere from RM10,000 to RM30,000.

(2) Stroke

Defined as a cerebrovascular accident or incident producing neurological sequelae

of a permanent nature, having lasted not less than six months.

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Smart Guide to Insurance Planning

Infarction of brain tissue, hemorrhage and embolisation from an extra-cranial

source are included. The diagnosis must be based on changes seen in a CT scan or

MRI and certified by a Consultant Neurologist.

Specifically excluded are cerebral symptoms due to transient ischaemic attacks,

any reversible ischaemic neurological deficit, vertebrobasilar ischaemia, cerebral

symptoms due to migraine, cerebral injury resulting from trauma or hypoxia and

vascular disease affecting the eye or optic nerve or vestibular functions.

Further Explanation

Ischaemic Stroke: This type of stroke occurs when a blood vessel in the brain

develops a clot and cuts off the blood supply to the brain. A blood clot that forms

in a blood vessel in tKH EUDLQ LV FDOOHG D ¶WKURPEXV· A blood clot that forms in

another part of the body, such as the neck or lining of the heart, and travels to the

brain is called an ¶embolus· Blood clots often result from a condition called

¶atherosclerosis· the build-up of plaque with fatty deposits within blood vessel

walls.

Source: www.clevelandclinic.org

An ischaemic stroke is the death of brain tissue (cerebral infraction) resulting from

an inadequate supply of blood and oxygen to the brain.

6RXUFH7KH0HUFN·V0DQXDO6HFRQG+RPH(GLWLRQ

Vertebrobasilar circulatory disorders are disorders in which blood supply to the

back of the brain is disrupted.

Hypoxia: a shortage of oxygen in the body. Hypoxaemia is the reduction of oxygen

specifically in the blood; anoxia is when there is no oxygen available at all.

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Smart Guide to Insurance Planning

(3) Coronary Artery Disease Requiring Surgery

This refers to the actual undergoing of coronary artery by-pass surgery by way of

thoracotomy to correct or treat coronary artery disease but not including

angioplasty, other intra-arterial, keyhole or laser procedures.

Further Explanations

Thoracotomy: a procedure in which a chest wall is opened to view the internal

chest organ, to treat diseases of the lungs, heart or major arteries.

It is a major operation, and is only used when other diagnostic techniques such as

thoracentesis, bronchoscopy, or mediastinoscopy fail to provide adequate

information.

6RXUFH7KH0HUFN·V0DQXDO6HFRQG+RPH(GLWLRQ

Angioplasty: Angioplasty is the mechanical widening of a narrowed or totally

obstructed blood vessel.

Keyhole: Technical advances now make it possible to perform surgery with smaller

incisions and less tissue disruption than occurs with traditional surgery. Surgeons

can insert tiny lights, video cameras, and surgical instruments through

keyhole-sized incisions. The surgeons can then perform procedures using the

images transmitted to video monitors as guides for manipulating the surgical

instruments. This kind of surgery is called laparoscopic surgery when performed in

the abdomen, arthroscopic surgery when performed in joints, and thoracoscopic

surgery when performed in the chest.

Wallet Damage!

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