I purchased my first life insurance policy when I was in college. Subsequently, as my income was low and irregular, I canceled it and bought a medical card which was affordable. Gradually, as my income increased, I upgraded my existing card, added critical illness coverages, and raised my sum assured. Today, at this point, I have 7-figures in sum assured.
Over my span of 10+ years as an insurance buyer, I was shared many interesting stories of everyday people, making unnecessary costly mistakes in this area. For most, they involve being penny wise, pound foolish. Here in this article, I will be listing down 4 of these common mistakes so that you can be smarter as a buyer or consumer of insurance products in Malaysia.
#1: The ‘I Have Insurance’ Syndrome
For a start, who doesn’t have at least 1 or 2 insurance policies today?
As I write, you could have purchased your life policies some 5-10 years ago. The question is, ‘What and how much does it cover?’. Is it adequate? For instance, if you have a policy that covers RM 50,000 in sum assured, could this be sufficient enough to pay off your debts and offer financial support to your loved ones? So here, the issue is on the coverage amount, not merely on having insurance.
This syndrome also applies to medical cards. Locally, they have already evolved. Some 10 years ago, medical cards offered annual limits in the range of 6-figures (RM 100,000-RM 500,000). Today, the new cards offer 7-figures (RM 1+ million) in annual limit. This is critical because medical inflation is now in double-digits.
So, instead of stopping at 1-2 policies, it would be helpful for us to have a policy review at least 1-2 times a year. This is so that we can keep abreast of the latest in the industry and make adjustments accordingly to suit our financial needs.
#2: Wrong Purpose, Wrong Plan
The purpose of having insurance policies is to obtain financial protection. That’s it. Period.
Today, there are articles written on how Malaysians are still underinsured. So, is it because most Malaysians do not buy insurance? Nope. Here, I think it may be possible for some to have bought the wrong policies for the wrong purposes. At this point, it is still common for people to expect some ‘financial ROI’ from their insurance policies. This is how people overpay for their life insurance policies or perceive insurance to be expensive today.
How helpful is your RM 500 a month savings plan if you need to be hospitalized due to an accident or a critical illness today? Yep, I think you get the picture. So, let’s move onto:
#3: Choose Agents solely on ‘Relationship’.
Today, it is common for us to ‘give business’ to our friends, family members and people that we like or trust. This is okay for we like to see them succeed in their career as an insurance agent or as a ‘life planner’. By doing so, we may not offer our business to insurance agents, who are more professional and deserving. So, the question is, ‘Is our loyalty always rewarded with better financial services?’.
Not exactly. Here is an example.
Two life insurance agents from the same insurance company had presented you with the same insurance policy that covers RM 500,000 in sum assured. But the premiums quoted by the two agents are hugely different. They are as follows:
The first agent, a veteran in the industry, has quoted you RM 300 per month. As for the second agent, he is your ‘buddy’ who quoted you RM 800 per month for the same exact policy. Which of the two agents would you buy your policy from today? Is it the first agent or the second agent?
The answer could possibly still be the second agent, your ‘buddy’. This is even if he had overquoted you significantly on the same exact insurance policy. Here, it is possible that either you are unaware of such mispricing or you like to be kind, nice, and supportive to your ‘buddy’. So in order to avoid such a mistake, I think you may compare similar quotes from at least 2-3 agents, before committing to purchase your next insurance policy.
Here is the idea. By all means, support our friends, but not at the expense of us as insurance consumers.
#4: Wrongful Nomination
There are a whole lot to expound on this. But here, I would just expound on the most common few. They are as follows:
First, it is an insurance nomination, made by a married person to his or her own parents. This is a mistake because the parents are not its legal beneficiaries, but are trustees to the sum assured of the policy.
So, if the life assured (buyer) passed on, the parents will receive the money and they are tasked to use the money to pay off his or her creditors, settle any taxes that are outstanding and distribute the balance to the rightful beneficiaries, like his or her spouse and children. The parents could be sued for misuse of funds if they failed to perform their tasks as trustees to these monies.
Second, it is an insurance nomination, made by a parent to a minor child. Whoa this is a big topic because a minor child could not receive money by himself due to him not attaining legal age to make banking transactions. So, in this case, the life assured should consider this and do proper estate planning, in order to care for his or her minor child or children.
As insurance nomination is a huge topic, I won’t expound it here. But here, I say that an insurance agent that is highly professional, is one that has well-rounded knowledge on estate planning matters. Such an agent is preferred, as compared to one who is not knowledgeable. If an agent is not well-versed with it, I think it is still okay, if he or she acknowledges this shortcoming and gets educated on it.
Otherwise, we can dismiss him or her as our insurance agent.
Conclusion: Beyond the 4 Mistakes
The above is a list of stories that I had gathered as an insurance consumer. Over here, I believe there are more mistakes that I did not cover in this article. Those would be left for another time. Here, the purpose for this article is to enable us, insurance consumers, to be smarter with our purchases so that we would make and build ourselves true financial safety nets to cover ourselves and loved ones.
By Ian Tai Financial content machine who blogs and hosts webinars with KC Lau.