1. What should I consider before I purchase or upgrade my insurance plan?
Starting off a career, with a new job, a new house and car, and possibly a life with a partner, are all just part of #lifegoals. However, you also need to take into consideration that most of these things come at a hefty price. With education, house and car loans and mortgages to pay off, it’s not surprising to realise that the number keeps increasing.
Life and medical insurance are critical aspects of financial planning and function as a safety net in the event of the unexpected. As such, you should carefully assess your financial needs. This includes taking note of existing debts and mortgages before purchasing a policy. Your debt is actually a reason to invest in life insurance now, as one of the points of life insurance is to protect your loved ones from your debt. Do note, if you are already heavily in debt, your cost of insurance may be higher as it affects your ability to pay for your coverage.
2. How much should I be paying for my insurance?
There really isn’t a one-size-fits-all amount on how much you should be paying for your insurance premium. A good estimate would be to consider your current financial situation and take it from there. If you are young, healthy, working in a low-risk environment and earning RM2,500 a month, keeping your insurance premium to within 10% of your monthly salary could give you an ample amount of protection and benefits without breaking the bank. As your salary increases over the years, you can increase your coverage and its premium while staying within this 10% margin to continue providing a safe yet comfortable window for better protection.
3. Which should I go for – monthly or annual payments?
Most insurance companies give you the choice of paying for the entire policy annually or spreading out the payments over each month. Which is the best option? Well, it completely depends on your circumstances. If you opt to pay for your insurance annually, you will be paying a lump sum amount to your insurance provider in one single payment at the end or beginning of the year. The advantage is you’ll be able to get the bill out of the way for the entire year. This is extremely helpful for people who have fluctuating/seasonal income, or are expected to receive annual bonuses, or tax refunds. It can also be helpful for people who have trouble keeping up with monthly payments.
However, like most people, you may find it difficult to get money to cover a lump-sum payment for the full year. In this case, the premium is divided by 12, and you pay that amount each month. If missing a payment deadline is your concern, you can set up auto-debit as an option to ensure your premium is paid on time. All you have to do is authorise your bank to make the payment directly to your insurer on a designated date each month.
4. Is it possible to be underinsured?
This may sound like an unnecessary question to ask – if you’re paying for insurance, how can you be underinsured? But this is still an important issue to look at. Protection isn’t just about paying a specific amount and receiving a lump sum pay out once you fulfil the clauses or terminate the plan, it’s about ensuring you have sufficient protection from what could happen in life.
Before choosing an insurance plan, you will have to analyse the extent of coverage you will get under the plan. Since there are several kinds of insurance plans available, there is a likelihood of you ending up being insured for some risks and being uninsured for others. For example, while medical plans typically do cover critical illness treatment costs, the high cost of treatment could eat away at your coverage. In the event that future illnesses crop up, you would have significantly less coverage to handle the situation with. But by adding a critical illness rider to your medical plan, you’ll have an extra cover of protection for 36 common critical illnesses. As the lump sum payout from a critical illness rider is not restricted to medical treatment, it can also be utilised for any other financial needs you may have.
So, in order to avoid being underinsured, identify your needs and select a plan that provides the best possible coverage for you!
5. Do I really need to update my policy in the future? Why can’t I just stick with what I have for the rest of my life?
You may currently be single or unmarried, but at some point, if you decide to start a family, you’ll find that an updated policy can be of immense help. Life isn’t stagnant as we continue to progress and grow, whether it is family or finances. So it is the same with insurance plans, you upgrade and increase your protection or coverage amount as your income grows. For example, if you have recently taken on a new work role that requires you to travel overseas, it would be ideal to check if your policy covers overseas travel.
The cost of insurance may seem daunting but paying a little more than necessary can provide a cushion for you and your loved ones, as both your income and your expenses are likely to rise over the years.
Figuring out insurance doesn’t have to be daunting, as long as you keep these points in mind. Assess the plans you have for your future carefully, then decide on the type of protection that best suits your needs and the premium you can afford to pay.