Author Topic: Adequate Protection: How much do I need?  (Read 7223 times)

Offline jeybon

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Adequate Protection: How much do I need?
« on: January 04, 2006, 10:38:06 PM »
Many of us realize the importance of insurance protection in terms of life, medical or personal accident (PA) but exactly how much protection does we need currently?  We need to know this to avoid ourselves from being underinsured.
   It depends very much on your needs.  Protection needs changes when a single person decides to marry.  It changes again when he has children and again when he decide to change his jobs.  So, it depends on some factors such as age, marital status, occupation, commitments and personal financial goals.
   Hospitalization and personal accidents policy are essential to everyone especially for those whose jobs involve frequent traveling or handling of machines.  Hospitalization policy protects us from short-term income lost due to surgery or mishaps.   Those lost of incomes usually range from RM3-5K for minor surgery to RM20-50K for a heart bypass or for temporary admission into Intensive Care Unit.  This policy would come in handy when not much liquidable cash is available during emergency.  Take sometime to think of how much financial setback would occur to you if you were to be hospitalized for a week.  Maybe RM5K.  Would that takes 4-5 months for you to recovered that amount?  What about a heart bypass for RM30K?  3-4years?  Let us think about it for a while…….Then decide….
   Meanwhile, most of us don’t pay much attention to the PAs.  As this is the most affordable policy compared to the hospitalization or life, it doesn’t cost much.  It offers accident protection, which is not covered by the Critical Illness policy.  It serves to cushion our fall from the accidents.  It hurts physically but financially?  You decide….
   Then comes the most important umbrella, the Life insurance.  It constitutes of Dread Disease (DD) and life policy.  Dread diseases covers the 36 major illnesses while life policy offers the death benefits.  DD policy protect ourselves from the impact of mid term income loss due to acquiring of one of those common disease while Life policy protects our love ones when the heaven call us back.  This insurance offers the greatest flexibility for customization due to the level and variety of needs.  The levels of needs depended on:

i) Age Group
ii) Profile               
iii) Minimum Needs

So if you are:
A. i) Single – eg. Fresh graduate   
    ii) Young, less/no commitment, Energetic, clubbing till late   
    iii) Basic hospitalization, PA is a must. Life cover at least 1 year of his/her salary

B.i) Married couple without child   
   ii) Young, committed to owning home or better cars, increasing commitment   
   iii) Basic hospitalization and PA.  Life covers 3 years of his/her salary

C. i) Married couple with children   
   ii) Young-middle age, high commitment   
   iii) Medium hospitalization and PA.  Life covers at least 5 years of his/her salary.  8 years if sole breadwinner. 

D. i) Married couple with grown up children   
    ii) Middle age-elderly, low commitment   
    iii) Medium hospitalization.  DD protection to continue to the years permitted

In my humble opinion, protections are the prerequisite to any investments because we have to watch our back before going into any battle (stocks,unit trust or real estate).  The battles would bring us closer to financial freedom while insurance would guard our rear for us.  Imagining ourself as a warrior, it's like wearing a piece of armour.  We could still get hurt if the armour does not fit us or the protection plate is too thin.  So, let's make sure that we catered right amount of protection to our real time needs.
Regards,
Jeybon

Offline julez.lim

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Re: Adequate Protection: How much do I need?
« Reply #1 on: January 09, 2006, 09:09:27 AM »
Question... how many types on insurance are there? Sounds like a lot.
How much priority should we put on them?

Offline jeybon

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Re: Adequate Protection: How much do I need?
« Reply #2 on: January 10, 2006, 11:24:26 PM »
In a short glance, it seems like there are lots of insurance policies to consider.  The priority is to fit the needs of an individual to their needs in financial protections as I had mentioned.  Let’s take a closer look into classification of protections:

a) Life
b) Dread Diseases (36 major illnesses)
   *Additional illnesses not covered in Dread Disease like lupus (common to
                  young ladies) is covered by PRULady.
c) Personal Accident
   *Additional Car Emergency Services in Highways like the MAA type offered by
                  Great Eastern
d) Hospitalization
   * Additional dialysis for potential kidney failure provided together with
                    some hospitalization investment linked policy. Eg. AIA
e) Annuity (depreciates in protections value when we aged)
f) Funeral expenses (paid in amount based on units bought in demise of the buyer)
g) Takaful (Islamic type)
h) Home:
   i)    MRTA (one/both of the spouses demise waive the entire house
                                         installment to the beneficiary)
   ii)   Houseowner’s (against total/partial loss, damages, public liabilities)
i) Business:
   i)   Partnership (pay the demise partner’s family the portion of the business
                                                 value to enable the current partnership to go on)
   ii)   Premises (against total/partial loss, damages, business liabilities)
   iii)   SOCSO (employee occupational hazard)
   *Most companies covered their employees under the Group Insurance Benefit
                  which is cheaper.  Employees can buy additional insurance for their
                  spouse or immediate family in option.
j) Others:
   i)   Celebrities who covers the income loss of scratches on their body parts or
      damage of voice for singers.
   ii)   Air Accident coverage when we charged the air tickets to our credit card.
                                Eg. HSBC Credit Card
   iii)   Many more…….

For the time being, it’s crucial to revise our insurance policy at least once in two years as there might be additional commitments that we didn’t take into accounts.  Remember, in battles, some warriors would be killed immediately by one arrow but for those who choose the right armor, they could withstand more and might emerged from the battle unscathed.  So pals, choose the right armor so that we could fight to win the war.
Regards,
Jeybon

Offline julez.lim

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Re: Adequate Protection: How much do I need?
« Reply #3 on: January 12, 2006, 07:40:37 AM »
Jeybon, you mentioned about investment-linked policy under hospitalization. What's your opinion?
Is it better to keep investment and insurance separate or together?

Offline jeybon

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Re: Adequate Protection: How much do I need?
« Reply #4 on: January 28, 2006, 12:52:34 AM »
Azizi Ali (author of 'Millionaire are from a different planet) mentioned of separating insurance from the investment.  Personal Money in the mid of last year(guess June-July issue) did publish the difference of returns when comparing the investment linked to separating the protection from investment all together.

           If you watched the investment linked offered by the companies carefully, the premium for the independent hospitalisation policy is a lot higher compared to the investment linked ones.  Part of the reason is to encourage more ppl to take up investment linked policy.  However, there was some concern regarding lots of policy holders, who wasn't aware that they are actually investing. 

Depending on the mutual funds/unit trusts performance, the value of their investments are also subjected to risk.  Most agents who intro the policies to their prospects used to point out to the potential returns at the 'high' instead of 'normal' return column.  Of course, we don't expect them to show the 'low' returns to their clients because it was nature for them to solicit sales at the end of the day.  However, some agents don't mentioned the risk at all.  This left the policy holders unaware of the 'risk'. 

Some thought they would 'surely' get good returns and wouldn't have to service their policies anymore after paying for around 15yrs.

As for the comparison did by Personal Money, there's no significant difference of returns in long term comparing to separating the insurance from the investment but if the policy holder surrendered the policy in short term, he would suffer losses.

However, experience investor like Azizi Ali might not see the return as significance as those investment linked policy is not so easily cashed out compared to the independent trust funds.  There must be at least RM5000 in the fund before we are allowed to cash out the extras.

So, it always depends on the financial needs of an individual.  If he prefers to have total control of his financial plans, the go for independent policy.  If not, then better get the more bargain investment linked policy.
Regards,
Jeybon

Offline Salahdin

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Re: Adequate Protection: How much do I need?
« Reply #5 on: May 04, 2007, 12:47:10 AM »
Had just found this old but interesting thread.  I agree that protections should be separated from investments.  I do believe in adequate protection but do not agree with over protection.  What do the other thinks?
The worst way of learning is to keep all the knowledge to yourself.  So, share it to others as they would to you.

Regards;
Salahdin (The Great Caliph of Baghdad)

Offline Salahdin

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Re: Adequate Protection: How much do I need?
« Reply #6 on: January 04, 2008, 04:35:25 PM »
Boying Insurance with EPF Account 2 would be useful right now.  :)
The worst way of learning is to keep all the knowledge to yourself.  So, share it to others as they would to you.

Regards;
Salahdin (The Great Caliph of Baghdad)

Offline KCLau

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Re: Adequate Protection: How much do I need?
« Reply #7 on: April 02, 2008, 05:42:46 PM »
I wrote one article about how much critical illness protection a person needs.
« Last Edit: November 22, 2008, 04:24:35 PM by Admin »
http://~*.com - Personal Finance Money Tips

Offline DenLee

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Re: Adequate Protection: How much do I need?
« Reply #8 on: May 03, 2008, 11:20:20 PM »
Depending on your age and at what stages of lie you are in.  A fesh graduate will need an investment linked policy to start with.  Along with a simple PA policy would be ample.

A breadwiner will need more on the life and dread disease as he had so many people depending on him.  PA would be crucial for his own protection.
Regards,
Denlee

Offline leno

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Re: Adequate Protection: How much do I need?
« Reply #9 on: May 15, 2008, 05:37:15 PM »
Don't forget to look on the other side too.
If you are an insurance company what is your main objective.
Make money ? How ?
Directly and indirectly confusing the buyer ?

Which dangerous illness to cover ?
The one which is very rare.
And to make it more rare, don't forget to mention in very small letter - only cover if get it before 5o years old.

How many people get Parkinson Disease ? And then how many people get it before 50 years old ?

Cover things that people already immune to like severe liver hepatitis due to Hepatitis B.
How many ppl already immune to Hepatitis B ? Almost everyone already got the vaccination.
And if u still haven't take up the vaccination, u need to have sex with a Hep B carrier before u get it.
How many who get hep B thru sex will develop severe hep B liver failure ?

Always magnifiying the severity of the disease ... and don't mention the chances and how they will get it.

When selling insurance, dont forget to use scaring tactics.
The Mister this and that did not buy this or that, see how they suffer now.

When sellling insurance, don't forget to mention it is a saving and investing vehicle too.
Make sure buyer feel they are indeed saving and investing.
Better still make them feel guilty for not saving their money for kid thru insurance.

Always highlight the amount they will get if anything happen
Always said " you will get RM 300, 000 ..... RM 300,000 only by insuring RM 250 only (per month.)"
Always emphasize on the "YOU WILL GET " try not to mention that he need to be dead by few months before the RM 300,000 will be given to others.

Opppss......to long already.

 >:D
Just blogging ... dont take me seriously ... or should you ?

Offline DenLee

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Re: Adequate Protection: How much do I need?
« Reply #10 on: May 15, 2008, 08:51:23 PM »
You are right Leno but we still need to be insured right?

It was always the sales pitch when the scare tactic comes in.  That's why, just go for adequate protection instead of buying protection of few million ringgit.
Regards,
Denlee

Offline Salahdin

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Re: Adequate Protection: How much do I need?
« Reply #11 on: November 21, 2008, 09:38:20 AM »
I buy enough according to my commitment to my family and the reasonable amount protected on the Dread disease.  I do not believe in over-protection either.
The worst way of learning is to keep all the knowledge to yourself.  So, share it to others as they would to you.

Regards;
Salahdin (The Great Caliph of Baghdad)

Offline hovercraft99

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Re: Adequate Protection: How much do I need?
« Reply #12 on: August 28, 2009, 04:12:05 AM »
Jeybon, you mentioned about investment-linked policy under hospitalization. What's your opinion?
Is it better to keep investment and insurance separate or together ?


Separate is better but then again if you are paying RM100 or even RM200 per month , what kind of investment can you buy ? That is when Investment Linked policy makes sense !!

Offline danieltkb

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Re: Adequate Protection: How much do I need?
« Reply #13 on: November 13, 2009, 01:35:32 AM »
Jeybon, you mentioned about investment-linked policy under hospitalization. What's your opinion?
Is it better to keep investment and insurance separate or together?
  yes, keep it separately, most big top company, make tons of money for you, insurance is insurance, they never make much money except taking much premium. do u know that premium in msia, is the most expensive? just cek out in spore, we paid more! there are hidden charges in IL policy, and the guy whom told u or try to convince u into IL, he is talking nonsence.
I am a professional investor and i own investment and hv life ins too.
these are two diff world, hope u be guide to the correct truth, call me up if u are still in dark, yap,  0164736163. bye