Insurance: Save or SplurgeHampton Wealth
We have all been approached by an insurance agent at one point or other in our lives. Sometimes, two, or three…
And we definitely have a friend or an acquaintance who is one.
As we sit through their sales pitch, it suddenly dawns on us that we NEED to purchase a policy (this particular policy that they’re offering us) right NOW.
Images of us being rendered disabled by a motor accident run wild in our minds.
As the agent runs through all the possibilities, the image devolves further and now we’re diagnosed with some critical illness and lying in a hospital bed, racking up exorbitant medical bills.
THIS IS THE WORST-CASE SCENARIO! HOW WILL WE EVER SURVIVE IT?
We break a cold sweat as the agent relays tale after tale of real-life cases of clients having to be admitted to the hospital for this emergency and that procedure. It all costs tens of thousands of dollars.
So without much hesitation, we agree to buy whatever was offered. It’s comprehensive and affordable, and it will protect us.
Our entire livelihood, family, and descendants depend on it. Or does it?
For the uninitiated, insurance involves paying a monthly or yearly fee to the insurance company against any damages or harm that might happen to a person or object. In return, the insurance company pays you for any financial damages suffered. You can choose to insure your life, health, property, vehicle, etc.
But does EVERYONE need an insurance policy?
The short answer is no.
The long answer is, it depends.
Let’s have a look at the most common insurance there are and why they might or might not be for you.
If you own a vehicle, it is compulsory to pay for an insurance policy every year to use the vehicle on the road. The policy offers financial protection against any bodily injury, property loss or damage, or physical damage to the vehicle due to fire, theft, or traffic collision.
As Malaysia has seen a steady increase in the number of road accidents in the past decade, to more than 500,000 cases a year, it is advisable to insure your vehicle adequately according to the current market price as it will affect the amount you can claim in the event of a loss or damage.
If you own a house in Malaysia, there are three main types of household insurance that you should look into purchasing:
- Basic fire policy which covers the building
- Houseowner policy which covers additional levels beyond that of the basic fire policy
- Householder policy which covers the contents of your home
Additionally, you might consider getting the following additional covers:
- Mortgage loan insurance
- Landlord insurance
- Home maintenance cover
Since a house is a big investment and likely your biggest asset, it is worth insuring it against any damage or losses that might happen. Remember that having to replace your property or even part of it will be an expensive proposition. Having a sum of money at hand from the insurance company can help to ease the process.
As we are all subject to sickness and accidents, it can be helpful to have health insurance. With the soaring medical costs in Malaysia, a trip to the emergency ward at a private hospital can set you back by the hundreds.
If however, you are unfortunate enough to have been diagnosed with some illness that requires treatment or a medical procedure, be prepared to fork out a hefty sum if you are thinking of getting them done at private hospitals.
This article highlights the jaw-dropping difference between the fees charged by government and private hospitals in Malaysia.
Of course, one can always opt to wait in line at government hospitals. They are fully equipped with the latest medical technology and staffed with experienced doctors.
But when we are sick, do we want to wait?
So get yourself health insurance and a medical card while you’re still young and healthy. The premium for health insurance rises with age and health conditions. Wait too long and you might have to pay through your nose.
Also, get to know your family’s medical history. The last thing you want is to be slapped with an exclusion clause for an illness that you need to get expensive treatment for.
Here is the debatable portion of insurance.
Unless anyone would be put at risk or suffer financially because of your death, life insurance is typically not necessary. So if you are single, financially independent, don’t have large debts, or own property or a business that will be liquidated upon your death, feel free to skip this part and look at saving or investing your money instead.
However, if you belong to one of these groups, then according to Forbes, you need to have your life insured:
- Parents with young children
- business owners with large debts, key employees, or partners
- employed spouses close to retirement who haven’t fully funded their retirement plans
- people with assets that can’t be easily liquidated.
If there are people who are financially dependent on you, then life insurance should be high on your list of priorities and a must-have if you don’t have sufficient liquid assets at hand.
The sum assured should cover your financial obligations such as:
- Children’s college tuition
- Other large debts
Most life insurance nowadays also includes a disability or critical illness policy. The coverage should be enough to enable you to enjoy your current lifestyle even if you can no longer continue working.
However, life insurance should never be treated as a source of income. Think of it as a quick means to replace income or to pay taxes or debts, as a form of protection for your dependents.
In Malaysia, you can get your life insured for as little as RM100/month. But it still comes down to your family’s budget and priorities.
Start with building an emergency fund to cushion yourself against any unexpected emergencies. Subsequently, your life insurance can cover the areas that your emergency fund cannot.
If you require more information about any of the insurance policies or would like some advice on how to manage your finances, give our advisors at Hampton Wealth Group a call. We are more than happy to have a chat and offer our insights on how best to protect you and your family.