Category: business

How can you determine your insurance requirements for better financial risk management?

We often encounter young members of the workforce looking to embark on their financial planning journey with a simple life insurance coverage. This move should be lauded as it makes a lot of sense to play defense before offense, so to speak. To kick start the conversation, the question of affordability will inadvertently crop up – how much can you afford to pay? While this is a practical approach for young career starters, is there a more optimal way to determine your insurance needs for better financial risk management?

Before sharing some thoughts on risk mitigation needs that should be addressed by leveraging on insurance tools, perhaps it is best that I briefly touch on the types of life insurance coverage that individuals can consider.

The most basic is to address concerns in the event of death. The idea is that should financial dependents and family members face a premature or untimely departure of a main breadwinner, there will be a financial payout to help the next of kin recover from this setback by ensuring that living expenses and financial commitments can continue to be met with minimal disruptions for an extended period thereafter.

Related to this is the need to provide financial relief if the breadwinner is still alive but no longer able to generate income due to a total and permanent disability (TPD).

In this scenario, funding is required to replace the revenue of the income earner while also considering any additional living expenses that can arise due to the disability.

The third area is for critical illness (CI) needs where a lump sum is paid to the insured if there is a diagnosis of a covered serious illness. This payment can be used to fund non-hospitalisation related medical expenses as well as rising living expenses to aid a faster recovery.

It is no secret that medical inflation is rising rapidly. The escalating medical costs and the fact that life expectancy is prolonging means that it is more important now than ever to have our own hospitalisation & surgical (H&S) coverage (also known as medical card). Lastly, we are also exposed to the risk of all forms of accidents that might partially incapacitate us for a short period or permanently. Personal accident (PA) coverage provides payment for accidental related risks.

Having an appreciation of these five types of coverage will enable us to address our personal risk management need through insurance planning more comprehensively. However, as alluded to earlier, trying to address these areas based on affordability alone might give one a false sense of having effective risk mitigation in place.

So how then should one go about calculating the more accurate amount of insurance coverage for the respective funding needs?

1. Family Income

Family income refers to the amount of money required to provide sufficient levels of funds to surviving financial dependents, so long as they remain financially reliant on the breadwinner. This will need to cover expenses such as living expenses for the whole family including dependent parents (ideally until the youngest child reaches the age of 25 and for nonworking spouse for their remaining life expectancy), education fees and related costs for minor children up till tertiary education and insurance premiums for family members.

It can include funeral expenses and estate administration costs of the deceased also. The sum of these costs will give you a more precise indication of the amount required for death insurance coverage.

2. Income Replacement

This refers to the need for funding if one is no longer able to work due to TPD and is calculated based on how much expenses are incurred in a year for normal living expenses. In the ideal scenario, the calculation should be from now till one’s life expectancy. However, this could be a tall order for most people, particularly young employees, as such a simple guideline is that TPD coverage should amount to at least five years of income or until one’s retirement age (assuming that one is able to fund retirement expenses separately).

3. Debt Cancellation

For those who have outstanding loans, especially a mortgage on the family home, or any other loans, this may reduce the amount of money the family will receive and should be considered. Some clients will expect investment properties to be sold while others would prefer to transfer the assets to their loved ones free from encumbrance.

As such, depending on your wishes, you should consider the loan cancellation needs to ensure that your estate has sufficient funds to pay off these loans as well as providing the required funding for the family. You have the option to self-insure (if there are sufficient assets to settle the loan) or transfer that risk to the insurance company. The sum assured needed can be provided for utilising potentially cheaper products such as a term insurance policy over the outstanding loan period.

4. Critical Illness

If you are diagnosed with CI, you may need to stop work temporarily to undergo the necessary treatment and take a break to have a successful recovery. If you need to cover your living expenses during the recovery period due to concerns over non-covered medical expenses or higher cost of living, then CI funding will help to defray these expenses. To ensure that you are not over-paying in premiums for this need, you can use the rule of thumb to providea sum assured of between 3-5 years of your current annual income.

5. Medical Expenses

As mentioned earlier, medical costs particularly for private hospitalisation needs is rising. While one can depend on public hospitals for treatment, it is better to have alternatives via the private medical route. We do have some clients who work with multinational companies providing comprehensive medical card coverage and question the need for their own medical card.

However, our advice is always to obtain your own medical card early so that the premiums are lower while you are in better health. Purchasing one only upon retirement may make you ineligible (due to pre-existing medical conditions) or having to pay a hefty premium due to your age or loading due to medical factors. Ideally one should have a medical card providing a room and board of at least RM200 with an annual medical limit of minimum RM1 million and no lifetime limit.

6. Personal Accident

Lastly, one should also have coverage for the risk of accidental injury, TPD or accidental death which may not be covered by the above policies. It does not help that the statistics do not favour the young – a higher percentage of youths meet with accidents resulting in the inability to carry on employment, permanent disablement or even death.

One should not only rely on payment from SOCSO for accidental claims as there are terms and conditions to be met. Often forgotten (as they are rarely sold due to low premium costs), PA policies are generally very cost effective especially with the attractive renewal bonus offered. Similarly, you can use the guideline of providing a sum assured of between 3-5 years of your current annual income for this need as well.

In summary, the path to having the right insurance coverage is indeed a balancing act of sorts. Too much, and you might make it more daunting to save and invest to achieve your desired financial goals. If you are underinsured, then you or your dependents might be in a financial quandary. So good on you for getting the ball rolling by purchasing insurance policies based on what you can currently afford as a
fresh member of the workforce, but do recognise that you will need to review your needs over time to ensure that you have an effective financial risk management plan in place.

About the author

Felix Neoh CFP CERT TM is the director of financial planning at Finwealth Management Sdn Bhd and can be contacted at enquiry@finwealth.com.my.

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth

We speak with financial planners to get their advice on what people at different stages in life need for insurance coverage.

If you think about your circle of family and friends, there is a good chance that you will know someone that works in insurance. But for a product that is seemingly ubiquitous, the numbers paint a different story.

In 2020, Life Insurance Association of Malaysia (LIAM) president Loh Guat Lan revealed that almost half of the country does not have life insurance, while the National Health and Morbidity Study conducted in 2019 by the Ministry of Health (MOH) showed that only 54% of Malaysians have health insurance coverage.

Apart from reasons of affordability, many do not have insurance simply because they do not see a need. However, this can be a dangerous mindset to have as it does not offer a safety net in the event of  unfortunate accidents or peril. After all, it is likely that anyone will go through life and come out completely unscathed.

Here is what three financial planners have to say about the types of insurance you should be looking to get:

What Insurance Should You Get In Your 20s?

This is the time when most people are settling into life as working professionals, often in their first job. Earning income for the first time can be a thrill, and with disposable income to spend on clothing, dining, hobbies and more, it is no wonder that insurance can often be the last thing on their minds.

“I often tell younger clients and friends that the first insurance one should get is a health insurance, or commonly known as the medical card,” says Marshall Wong, a licensed financial planner at FA Advisory.

“A health insurance covers the hospitalisation bill that may cost more than one’s annual income.”

He adds that personal accident insurance is the second most important insurance that young working adults should seek out, given that traffic accidents are the fourth-highest cause of death in the country according to the Department of Statistics Malaysia.

Although a life insurance policy will usually cover accidental death, he notes that the premium for such coverage is “a lot higher” than insurance for personal accidents.

“Young adults may not be able to afford an adequate coverage,” he notes, with this being the reason why personal accident insurance is important.

Although having insurance is always important, Wong acknowledges that many of today’s youths may be of the mindset that it is unnecessary given their age. He warns that a lack of insurance could potentially lead to financial ruin if an unfortunate event occurs.

“Young adults need to know that not all insurance is expensive, and not all insurance agents are out there to take their money,” he advises.

“There are plenty of affordable insurance that may be suitable for them. If you cannot afford an investment-linked medical card, you may opt for a stand-alone medical card. The standalone medical card may not have as many features as an investment-linked counterpart, however, it may cover the basic necessities, and it may cost 50% lesser!”

When quizzed about niche forms of insurance, Wong says that it is more important for young adults to “stay nimble” rather than opting for unnecessary protection.

“Hire a fee based financial planner to go through your financial position as the exit cost of some insurance products can be very high,” he suggests.

What Insurance Should You Get In Your 30s?

By this time, most people should be well-established at work and have built up a solid base in terms of finances. This is the period in which many start taking on more financial responsibilities and assets. So where does insurance factor into this?

“In your 30s, your financial status is likely to be more stable,” says Pang Wan Khim, a licensed financial planner with VKA Wealth Planners.

She recommends a life insurance policy for those who do not have one at this age, as most people will have plenty of bills and commitments to pay down, such as cars, houses, and even marriage.

“With many financial responsibilities, and good health likely still on your side, you should get a life insurance policy to protect your loved ones’ future from life’s uncertainties,” she says.

Such policies pay out a lump sum of money to beneficiaries in the event of premature death. The idea is that death benefit should be sufficient to replace future income loss especially if you have a spouse who solely relies on your income. The total amount will cover the expenses and obligations outstanding such as funeral costs, medical expenses, debts, children education or living cost for your loved one.

“This gives your family financial continuity so they do not have to struggle and have more time to structure the financial status or fill the financial gaps,” explains Pang.

With most people in this age bracket acquiring assets like property, vehicles, and businesses, the upfront cost usually takes decades to accumulate. This is where financial assistance from banks come into play, with loans usually taken to acquire these assets.

“But as a borrower, if you pass away, all the debts will still need to be repaid in full by your estate,” she warns.

“Life coverage plays a crucial role in this situation and most people tend to overlook this when planning.”

She also believes critical illness insurance is very important as it helps to cover insufficient limits on hospitalisation plans as well as costs not covered on such plans, as well as non-medical costs like nurse care, transportation expenses, income replacement, medical equipment or even time off while recovering.

Although she is recommending guidelines for those in their 30s, Pang believes that insurance should be bought as soon as you can afford it, regardless of age. It goes without saying that the best time to buy is also while you remain healthy, but ultimately, these are just best-case scenarios as life is not the same for everyone.

“My general recommendations will not work for everyone because our situations are unique and financial statuses are different,” she observes.

Pang also recommends investment-linked insurance because most people tend to be busy with work and family, and it provides flexibility and peace of mind. With the cost of insurance generally increasing, she suggests using some of the investment proceeds to cover this increase in later years.

“The design of this product does offer a structure that helps us to gradually accumulate value which may be used to help us fund for the future when charges are generally higher,” she adds.

“However, as this is still an insurance product, the main focus should still be about protection, not growing your wealth.”

What Insurance Should You Get In Your 40s?

Individuals in this age group should be firmly at their peak in life. Many will have assumed positions of seniority at their jobs or built a family. With all these added dependents, not having insurance by this time can often be concerning, with premiums usually higher due to the advanced age of potential buyers. So, have you missed the boat by the time you hit your 40s?

Nicholas Wong, a certified financial planner with IPP Financial Planning Group, believes that it is “never too late to get insurance”, but concedes that it is advisable to start getting insurance at an early age.

“It is always recommended to get coverage as soon as possible if one can afford it as one can only obtain insurance when healthy,” he shares.

The higher risk of developing illnesses or other serious health conditions means that for individuals in their 40s, it is now or never when it comes to buying insurance, especially if they are still healthy. Those with pre-existing conditions may find it harder to purchase insurance coverage says Wong.

“Your plan might come with exclusions or premium loading, which is paying more due to illnesses such as hypertension, for example. If one has diabetes, one generally can no longer purchase medical or critical illness coverage.”

“Thus, it is better to get a plan when you are younger as the premiums are lower and there is less risk of having exclusions or insurance coverage being denied,” he concludes.

For middle-aged people looking to get insurance for the first time, there is still time as alluded to earlier.

“For insurances, we always look at the needs of the individual and have to select the appropriate type of coverage,” says Wong.

“For example, if they have dependents such as young children or old parents, life insurance would be a need unless they have surplus liquid cash around.”

Wong, who formerly worked in insurance, recommends critical illness and disability insurance as a safety net against a loss of income arising from unfortunate events. This is because those in their 40s are likely to be at the peak of their career in terms of earnings and income replacement coverage will help to mitigate against unfortunate life-changing events.

“For critical illness cover, the recommendation is three to five times of the annual income or annual expenses,” he says.

“This means that while one is recovering from a critical illness, they would be able to take three to five years off work and not worry about expenses or dipping into their savings.”

Wong also recommends a 20-year term plan for those in their 40s as it is both affordable and provides large amounts of cover.

“A 20-year term plan with RM500,000 for life and total and permanent disability cover with RM100,000 critical illness cover can start from approximately RM200 a month,” he continues, noting that premiums may differ depending on plan benefits and type.

Wong suggests that one should usually budget 5-10% of total income for insurance payments, with this amount set aside to “protect or guarantee the remaining 90-95%” in the event of death, disability, critical illness or hospitalisation.

“Medical insurance which gives access to private healthcare is also something one can consider as it gives you more options when it comes to medical treatments as not everything is covered by our government hospitals,” he adds.

Insurance As Wealth Management

While many may look at insurance purely from a protection standpoint, it may also help to picture it as a mechanism to manage or preserve your wealth. Here are four ways which Angie Ng suggests insurance can be used for this purpose:

1. Wealth creation
“Part of the premium paid each month can go into cash value and there are also some products available that will help people who prefer very conservative savings instruments to build their wealth slowly and steadily.”

2. Debt cancellation
“There are insurance policies from which the proceeds can settle outstanding loans on assets like houses, cars, businesses and others in the event that they are unable to repay the balance.”

3. Wealth protection
“When risk is incurred, medical treatment, critical illnesses or total permanent disability occurs, insurance can protect their wealth as the treatment and insurance proceed can ease their financial burdens without
touching their hard-earned money.”

4. Wealth distribution
“In the event of an untimely death, life insurance policies can help to settle a person’s outstanding taxes, estate administration fees, and most importantly, leaving a legacy behind for their loved ones.”

In addition, insurance can also be used to mitigate the risk of natural disasters, no matter how rare or unexpected they may be. According to the Department of Statistics, the 2021 floods caused total losses of RM6.1 billion, with RM1.6 billion of damage to residential properties, RM1 billion to vehicles, RM900 million to the manufacturing sector, RM500 million to business premises, RM90.6 million to agriculture, and RM2 billion to public assets and infrastructure.

“If you are exposed to risk, for example, flooding in low lying areas or landslides in high hill areas, it is wise to include additional peril in your insurance policy to cover for natural disasters or other events,” says Ng.

Are you psychosocially fit to harness fintech solutions for your financial well-being?

The outbreak of the Covid-19 pandemic has accelerated the use of cashless payments in Malaysia. There is a surge in the usage of cashless payment as consumers start to adopt e-wallets like Touch ‘n Go, GrabPay, and MAE, besides the use of electronic payment through cards, mobile banking and internet banking during the Movement Control Order (MCO).

A cashless society does not necessitate that cash transactions do not exist in the economy but rather, financial transactions are facilitated by electronic means in an attempt to minimise the volume of cash transactions.

As the buzzword “fintech” is rapidly becoming a household name, early adopters may have already benefited from their early adoption of fintech solutions. There were many lengthy articles written on the benefits and risks of moving towards a cashless society as well as highlighting the risks associated with the adoption of fintech platforms such the potential compromise of client privacy, security and operational risks. In their quest for higher customer acquisition, fintech platforms provider may have overstated their claims with regards to their services.

Not surprisingly, certain segments of the society, which are either unconvinced of the benefits or lack the ability to reconcile with the technology, are still rejecting the use of tech-based solutions despite rapid adoption by the tech-savvy generation.

So, are we getting or feeling smarter as technology users? Is our digital financial literacy moving in parallel with the availability of fintech solutions to manage our finances?

As reported by EPF, our savings are not sufficient and some EPF members are opting for early special withdrawal under i-Lestari, i-Citra and i-Sinar due to the pandemic.

So, are cashless and fintech solutions the panacea to help us save, spend or invest better?

The main issue does not lie with using technologies per se for financial planning but rather, a lack of awareness in understanding savings and spending behaviour. This is because, if we cannot or do not have the self-disciple to save, knowledge and skills alone will not enable us to fully capitalise on investment opportunities provided by fintech solutions.

Let us try to understand ourselves. In this age of consumerism, by nature, it is our inherent behaviour to prefer current consumption over future consumption. The additional satisfaction known as marginal utility in Utility theory expounded that the marginal utility of current consumption is always higher compared to the marginal utility of future consumption.

In other words, it may be difficult for some of us to save for tomorrow unless we are incentivised to do so. As most people are not self-motivated creatures, we need external push and interventions from time to time to help shape our savings behaviour. In addition to this, psychologically, we dislike waiting.

But unfortunately, the incentive to compensate us for waiting and delaying our current consumption in the form of interest rate is negative. In this low or negative interest environment coupled with the availability of easy credit, plastic cards such as debit cards or credit cards, e-wallets or other alternative payment systems, the motivation to save becomes even lower, and spurs us to spend recklessly.

While we love the constant innovations or fintech solutions by companies in their attempt to provide a seamless experience for customers, we are becoming somewhat less patient. Spoilt for choices with a button or click-away conveniences provided by companies, our impulse to spend for instant gratification is magnified.

In addition, the theory also explicates that we tend to value current consumption even more over future  consumption during period of scarcity. Thus, it is no surprise that due to the Covid-19 pandemic, we may have the urge to spend and consume even more like there is no tomorrow.

Some of us are being lured into adopting exuberant lifestyles that are beyond our means as we are besieged daily by spam, scam calls, marketing gimmicks or repetitive unwanted advertisements.

While some of us are plunging deeper into the abyss of maintaining exuberant lifestyles that we find hard to extricate ourselves from, companies are getting unrelentingly creative in helping us to reduce our pain of losing money via innovations in electronic payment means. Accordingly, we do not just experience as much pain as our predecessor because we are just literally transferring the numbers or data via the electronic systems when we make our purchases. In consequence, we are inclined to spend lavishly on unnecessary items.

Things were markedly different back then when cash was used extensively. Our grandparents or parents may have better spending habits because they get to feel, touch, smell and count the hard cash of their money in their hands before parting with their money. The painful experience associated with seeing with their own eyes that the money is actually leaving their hands or pockets may have deterred them from spending on unnecessary items. This explains why they spend more on necessities that benefit themselves to equalise the pain inflicted upon parting with their money.

To put it in another way, if we could not be cognizant of our own innate behaviour by getting psychosocially ready, in harnessing the so called “smart” fintech solutions, we are not going to get smarter. On the contrary, we may become more mentally depressed.

Cultivating good spending habits and resisting temptations to splurge often require self-discipline, practice and planning. To be more unsusceptible to act impulsively when our brains process words frequently used by marketers such as easy, convenient, fast, instant, and limited, we should stop being hyperconnected all the time.

By not subscribing to this new religion of “irrational exuberance” (a popular term used by Professor Robert Shiller) in our daily spending habits, hopefully, then, perhaps, our life would be psychosocially and financially happier.

About the author

Dr Audrey Lim Li Chin is a lecturer and a researcher at Multimedia University (MMU) Melaka. She teaches International Finance and Derivatives. She is particularly interested in retirement planning, mental health, fintech especially in blockchain and data analytics. She is also a Certified Financial Planner, (CFP) and is currently pursuing Chartered Financial Analyst (CFA) certification. She is also the external educational advisor to Max Wealth Education Sdn Bhd.

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These content creators are known for their financial savviness but what about their own safety nets?

Personal finance is a topic that many Malaysians have begun taking an active interest in recent years, with more and more people looking up ways to maximise their net worth, especially in the wake of the pandemic. This surge of interest is also reflected by the number of personal finance content creators that have emerged and built up sizeable followings of their own.

But while investing in the wide array of products available may be more up their alley, how have they built their own contingency plans in the event of life-changing events? Here’s what some of Malaysia’s most well-known finance content creators have to say about insurance:

Leigh (32 years old) – Dividend Magic

SI: What types of non-compulsory insurance do you currently have?
L: Medical, life, and house insurance.

SI: Which of these is most important to you and why?
L: Medical insurance. My life insurance is the bare minimum as a base policy for medical insurance. I see medical as being the most important in the future and because I have no dependents now, no life  insurance for me. As we all know, the medical inflation rate is crazy and way above the average inflation rate of the economy. I foresee myself having to increase my medical coverage in 10 to 20 years.

SI: What prompted you to purchase your first insurance policy?
L: Financial literacy and with the realisation that medical costs can reach hundreds of thousands of dollars!

SI: What type of insurance do you think every Malaysian should have and why?
L: Medical definitely, please please please get your medical coverage sorted out. As for life insurance, you should consider it if you have dependents. If your investments and savings are sufficient, you might not even need life insurance etc.

SI: Is there a niche form of insurance that you have considered purchasing?
L: No.

Read more from Leigh at dividendmagic.com

Helmi Hasan (35 years old) – Balkoni Hijau

SI: What types of non-compulsory insurance do you currently have?
HH: I currently have a personal life and medical policy, an additional life and medical policy from my employer, and house insurance. I also used to have annual travel insurance pre-Covid as I travel frequently.

SI: Which of these is most important to you and why?
HH: Medical and travel insurance is super important as I studied in the US. A friend of mine was hospitalised for a broken collar bone in a skiing accident had to fork out at least US$4,000 for his medical bill. Also, as a family man, a home is super important, so you might want to get house insurance and flood coverage since the last flooding event.

SI: What prompted you to purchase your first insurance policy?
HH: My mother asked me to buy insurance to follow in her footsteps. I started with investment-linked life insurance. But after I had kids, I needed to readjust my insurance plans. For me, I only want to get insurance coverage (without the investment part).

SI: What type of insurance do you think every Malaysian should have and why?
HH: Medical, life, and house should be mandatory for all. Also, all Malaysians MUST have extreme weather insurance coverage (floods etc).

SI: Is there a niche form of insurance that you have considered purchasing?
HH: When I was working in Singapore, there was something called “lifestyle insurance” where if you are laid off from your job, it can help to pay your salary for a few months. I have yet to see such insurance in Malaysia (besides PERKESO) and would like to consider one.

Also, as a YouTube content creator, I invest in expensive camera gear. I want to purchase camera/tech insurance as it’s normal to have this in the US.

Read more from Helmi at balkonihijau.com or subscribe to his YouTube channel.

Suraya Zainuddin (33 years old) – Ringgit Oh Ringgit

SI: What types of non-compulsory insurance do you currently have?
SZ: I have medical, critical illness and personal accident insurance.

SI: Which of these is most important to you and why?
SZ: In my early 20s, I thought medical card was the most useful, since I didn’t want to burden my family with hospital bills in case anything happens to me. Now in my 30s, I appreciate critical illness insurance more, especially after knowing the best time to get it is before having serious illnesses. Otherwise, you’ll be considered to have pre-existing conditions and the insurance won’t cover it.

SI: What prompted you to purchase your first insurance policy?
SZ: I heard ‘I wish I got insurance’-type advice one too many times, especially on the personal finance-related forums I used to frequent. Something about hearing complete strangers’ regret over not doing certain actions in their youth that would have greatly benefit them in old age made me determined to get my insurance situation sorted out.

SI: What type of insurance do you think every Malaysian should have and why?
SZ: Different types of insurance cover different types of risks, therefore there is no one type that is a blanket ‘must have’ for all.

I have two opinions when it comes to Malaysians and insurance. One is we should not pretend that comprehensive insurance coverage is not expensive, and out of reach for many Malaysians in the M40 and B40 category (and even for some in the T20 category as well). According to the Department of Statistics Malaysia, the median salary for Malaysians in 2020 is RM2,062. Paying for life, medical, critical illness, personal accident, house and car insurance with suitable sum assured can easily reach RM1,000 per month. The maths simply does not add up. Malaysians should be compensated better to be able to afford insurance.

Secondly, the irony of insurance is it is the most important for the people who cannot afford it. While there are now government programmes like Perlindungan Tenang specifically for the B40 community, take up rate is low. Rather than spending so much time and money and effort in educating about the usefulness of the tool, I wish it was implemented on an opt-out rather than opt-in basis, so the coverage is automatic for the people who need it. Alternatively, take-up rate may also be improved if insurance is added as a requirement for getting specific government services, such as cash handout.

SI: Is there a niche form of insurance that you have considered purchasing?
SZ: I have considered pet insurance before.

Read more from Suraya at ringgitohringgit.com

Chin Yi Xuan (28 years old) – No Money Lah

SI: What types of non-compulsory insurance do you currently have?
YX: I have life, medical, and critical illness insurance.

SI: Which of these is most important to you and why?
YX: All of them are equally important as they act as financial protection for me and my family under different circumstances in life. Life insurance pays when I pass away. Medical insurance pays if I am hospitalised. Critical illness comes in as income replacement if I get illnesses like cancer.

SI: What prompted you to purchase your first insurance policy?
YX: I upgraded my policy as there was a transition in my life from being a student to a working adult. I needed more comprehensive coverage in line with new commitments and rising medical costs.

SI: What type of insurance do you think every Malaysian should have and why?
YX: Everyone should get a medical card and critical illness protection in event where one is hospitalised and/or down with illness like cancer. Especially for people that have commitments and family, best to get life protection to help ease the burden of their loved ones when they pass away.

SI: Is there a niche form of insurance that you have considered purchasing?
YX: No.

Read more from Yi Xuan at nomoneylah.com

Ryan Lee Chun Hoe (31 years old) – Bujang and Broke

SI: What types of non-compulsory insurance do you currently have?
RL: I got myself life, medical and house insurance at various stages of life.

SI: Which of these is most important to you and why?
RL: Personal insurance is the most important to me because of unpredictable situations that may occur which I have no control of, such as accidents or health threatening diseases. Insurance may help to reduce the financial burden if I face hefty bills during the recovery phase.

SI: What prompted you to purchase your first insurance policy?
RL: I was late to buy my own personal insurance as you can actually pay a cheaper premium before you turn 25 if I am not mistaken. Around the age of 27 years old, I started to take adulthood and self-reliance seriously whereby if I happened to be on the hospital bed, will I be able to pay my bills? Would I want to seek help from my family members who are saving money for their retirement or medical bills? Hence, after giving it some thought, I personally did not want to trouble them which made me buy my first personal insurance.

SI: What type of insurance do you think every Malaysian should have and why?
RL: Medical insurance because operations and hospital accommodation are expensive, which could easily burn your hard-earned savings. The last thing you want is the hospital chasing you to pay your bills before they decide to treat you; we can’t blame them for this because that is what keeps their operation running.

SI: Is there a niche form of insurance that you have considered purchasing?
RL: Not at the moment; buying insurance is subjective as it is supposed to solve the problems that you are facing in life without much worries.

Watch more from Ryan on his YouTube channel.

Gracie (30 years old) – Ringgit Freedom

SI: What types of non-compulsory insurance do you currently have?
G: Mainly life and medical insurance.

I didn’t opt for mortgage insurance but instead, I purchased life insurance with sufficient cover to offset my mortgages as it provides greater flexibility at lower cost. I also added an additional buffer for families to have additional pocket money when I pass on.

As for the medical insurance, I also added some accelerated critical illness payout for myself in case of severe illness or major surgery, avoiding potential dents to my cash flow and emergency fund.

SI: Which of these is most important to you and why?
G: Quite frankly, both are equally important to me but if I really have to choose, I’ll pick the medical insurance with accelerated critical illness payout. If I were to be unfortunately affected by critical illness which affects my employability and disrupts my income (both from hefty medical bills and the lack of paychecks) – the insurance will definitely be a blessing for myself and my family since the large sum of payout via life insurance is only meaningful for my family members upon my death, not myself.

SI: What prompted you to purchase your first insurance policy?
G: When I signed up for a mortgage for our first family home, I had to purchase the life insurance on the same year to offset my mortgage loan, since my mom wouldn’t be able to service the mortgage loan upon my passing, hence I needed to ensure that she has a place to stay even if I moved on.

I relied only on my company’s medical insurance for the first few years until my salary grew enough for me to afford a proper medical card (whilst not overstretching my monthly budgets).

SI: What type of insurance do you think every Malaysian should have and why?
G: Personally, I think it differs on a case-by-case basis as everyone is exposed to different risks. But as a bare minimum, I would recommend getting a basic medical card whilst we’re still healthy with sufficient coverage proportionate to our risk appetite/level.

Leverage insurance can also be considered as a form of mitigation for risks we cannot afford to have – but be very careful not to fall onto the trap of over-insuring ourselves especially for risks that we can easily afford to take, since over-insuring will just do more harm than good on our cash flows.

SI: Is there a niche form of insurance that you have considered purchasing?
G: No.

Read more from Gracie at ringgitfreedom.com

Passing your hard earned wealth to the next generation is not as easy as writing a will.

The Covid-19 pandemic which started two years ago still lingers on today, which has affected the planning of individuals and businesses in many ways.

As far as estate planning for one’s estate is concerned, the awareness on the need to do personal estate planning has been heightened. This can be demonstrated by the fact that many will-writing and trustee companies have reported a jump in their will-writing business in the past two years. The unexpected spike in deadly casualties due to the attack by the Covid-19 virus has rattled many who began to worry about their health and safety.

What is estate planning?

Estate planning is actually more than having your will written, though it is a basic instrument in estate planning. To put it in layman’s terms, you can say that it is a well-thought through planning process to ensure that your loved ones are protected, your hard-earned assets are preserved, and your accumulated wealth is perpetuated to more than three generations.

You have probably heard of this Chinese saying that goes “Wealth does not pass through three generations”. Interestingly the Americans have a similar saying, “Shirt sleeves to shirt sleeves in three generations”. These sayings show that estate planning is both necessary and crucial, especially for those who are on their way to, or have accumulated a fair amount of wealth.

Is writing a will estate planning?

Most people have the impression that having a will written is having done their estate planning. Water is essential for soup, but soup is more than just water. In actual fact, there are more legal instruments than just a will, such as a testamentary or living trust, a shareholders agreement, a Labuan foundation, life insurance and its use of nomination. Even an EPF nomination or a joint-account, planned intelligently is an instrument in estate planning.

Integrated approach to estate planning

Thus, there is a need to integrate all your estate planning instruments into a coherent estate plan. This is because the various instruments you choose must work together to address all your concerns in the event you depart from this physical world.

On top of that, your estate planning must also be able to handle the situation, though less likely, in the most tragic event that you and your beloved spouse were to perish at the same time, or die within a short span of each other. We have seen such tragedies occur during this pandemic.

Estate planning must be objective-driven

As the estate planning industry in Malaysia is still very product-driven, financial consumers end up with, and having being sold, a will or a bunch of fragmented products. The danger in such a scenario is that when the time comes, there will still be gaps that will not be covered by the products, and left the beneficiaries dangerously exposed.

To eliminate such a risk, your estate plan must be objective-driven. What this means is that your estate plan must achieve all your intended objectives when the time comes.

To help you think through and to write down your estate planning objectives, you can refer to the 3Ps model in estate planning – protect, preserve and perpetuate your estate.

3Ps model in estate planning    

Your first estate planning objective must always start with protecting your intended beneficiaries. Their welfare and financial well-beings must always be highest on your list. This is especially true when you have beneficiaries who are under-aged, be they your minor children or grandchildren. Parents with special needs children must also pencil in this objective when they start thinking about what will happen to their special need child if and when they, as parents, predecease the children.

Secondly, you must set in your mind to preserving your hard-earned wealth if you were to suffer an untimely demise. The tragedies we know of during this pandemic among our friends, and actual incidents we read in the newspapers remind us that life is uncertain and no one is immortal.

Preserving your wealth means you take deliberate strategies to prevent your wealth from being poached by potential creditors. It also includes preserving your wealth from being destroyed or diminished in its financial value from potential business risks as well as unexpected professional liability exposure. You can imagine it as a financial tsunami that hits you when you least expect it. The business and work environments faced by business owners and professionals can be quite unpredictable, especially in the post-pandemic world.

Thirdly, you should plan in such a way that your beloved family members and descendants will be blessed by your hard-earned accumulated wealth beyond three generations. In this modern and IT-centric world, there are many potential risks of losing your wealth when you pass your wealth to the next generation.

We have seen some people’s wealth dissipated due to low financial intelligence of their descendants; and some lost through scams; business failures or in some cases through indulgence of their descendants. It is always wise to be extra careful when you do your planning. When it comes to planning your own hard-earn estate, it is expected of you to exercise the same standard of care.

About the author

Lee Khee Chuan is a chartered financial consultant (ChFC), chartered life underwriter (CLU), CFP professional, and Fellow, Life Management Institute (FLMI) USA. He is also a licensed financial adviser representative with more than 25 years’ experience in estate planning. To learn more, visit: www.estateplanningmalaysia.com