Pay less for more? Absolutely!

MY3 Blog post  

Many of you would have heard of life insurance and how you can use it to provide financial security to your loved ones in the event of your death. Insurers have advertised this concept behind life insurance well. However, the variety of options available to you under the tree of life insurance may not be as well known.

 

 

 

 

 

Do you know of “Term Insurance”? Amongst all the life insurance products, Term Insurance is the product that can provide you with the highest death benefit cover at the cheapest premiums?

 

The life insurance policies you tend to encounter, especially those sold through insurance agents, are typically investment-linked whole life insurance products, or savings products that provide relatively low death benefits. Because a portion of the premiums that you pay is diverted into investments or savings, the total premium outlay could be very high for what will eventually be a smaller death benefit cover. These “life insurance” products tend to be sold more frequently in part due to the seller’s remuneration (the higher the premium, the higher the commission a seller earns!).

 

If what you need is a product that will help provide financial security to your dependents, be it your children, spouse, parents and siblings or other relatives in the event of your death, then Term Insurance, will be the product for you instead.

 

Term Insurance is simple product that provides a death benefit in the event of your death during the policy term. Because it does not have any embedded savings or investment elements in the product, the premiums go into funding your death benefit only.

 

 

Term Insurance: Lower Premium, Higher Benefits

 

A Whole Life Insurance Product has a cash value that starts building up after a few policy years. This cash value will be the amount that is paid out upon surrender or maturity of the policy.

 

On the contrary, Term Insurance has no cash value upon surrender or maturity. This means that should you choose to cancel your policy, or outlive the maturity of the term insurance policy, you do not get back any value.

This is why the premium for Term Insurance can be much lower. Some readers may habour some doubts. A product with lower premium would compromise the death benefits. After all, a cheap product can’t be better.

 

Or can it?

 

 

Case Study

 

Alan is a 30 year old non-smoker and he is trying to decide between a Term and a Whole Life Insurance plan from Company A. This are his options:

 

Product Type Sum Assured

Policy Term

(A)

Monthly Premium (B) Total Premium Paid (AxB)
Term RM 100,000

30 Years

(up to age 60)

 

RM 64 RM 1,906
Whole Life RM 100,000

70 Years

(up to age 100)

RM 101 RM 7,093

 

With a Term Insurance, a premium as low as RM64 a month can get Alan a coverage of RM100,000 for his family in the event he dies before age 60. Alan has assessed that he cover up to age 60 will be sufficient as he expects his youngest child to be financially independent by then, and that he will also have paid off the outstanding loan on his mortgage.

 

If he purchases a Whole Life plan, he gets cover up to age 100. However, the monthly premium required is almost 60% more. Alan will also has to pay premiums over a longer period which he may not need since his dependents are expected to be financially independent by then. His total outlay is also going to be 270% higher.

 

 

Which Term Insurance plan to buy?

 

To help you manage the overwhelming amount of information, the InsureDIY team has put together a comparison table of the term insurance plans in Malaysia. Register now to receive free quotes and see the highlights of the most popular plans in town.

 

There are also other insurers in the market providing Term Insurance products. These companies like AIA or Prudential have a wide range of products and Term Insurance is one of them. Should you be interested in one of these insurers, This email address is being protected from spambots. You need JavaScript enabled to view it. and we will be able to reach out to you.