The Top 15 on Insurance

1. Insurance costs a lot but having none costs more.

There are sensible ways to save money on insurance, but skipping coverage when you really need it isn't one of them. Your unexpected death will cause your family a lot of grief – you don’t want to add financial difficulty to their burden. Even if you don’t die, medical bills from even a minor car accident can deplete your savings – a major illness can push you into bankruptcy.

2. If your employer offers insurance, grab it.

Group coverage, particularly when it's employer-subsidised, is almost always a better deal than anything you can get on your own, even if you're young and healthy. And if you're NOT young and healthy, it's definitely a better deal.

3. Know what’s on offer.

In life assurance, there are Term policies, which provide pure insurance coverage, and then there are the many variants of Endowment policies and Whole Life policies, which combine a savings and investment product with pure term insurance and build cash value. Health insurance is still new in Malaysia, but it is helpful to know the different types of cover available.

4. Insurance is sold, not bought.

Agents sell the vast majority of policies written in Malaysia because the insurance industry has a vested interest in pushing high-commission (and high-profit) policies. Knowing the products better will help you get a better deal and prevent yourself from being conned.

5. Endowment and Whole Life is expensive.

Policies with an investment component, especially investment-linked policies, can cost many times more than Term policies. As a result, people who buy these policies often can't afford an adequate face value, leaving themselves under-insured.

6. Investment-linked products are built on assumptions.

The returns quoted by the agent are simply guesses – not reality. Nobody can accurately predict what interest rates and returns on equity will be like for the next 20 or 30 years. Some companies keep these guesses of future returns on the high side to attract more buyers, so beware.

7. Keep your investing and insurance strictly separate.

If you can manage your money, it is best to invest it yourself or leave it to the experts, i.e. asset management firms or unit trusts. There are far better places to invest than in insurance companies, and without the high commissions of insurance policies.

8. Buy enough coverage to fill your needs.

Life insurance is no place to skimp, especially when you need the cover. The lowest premium isn't always the best value for money. What your insurance covers is just as important as, and sometimes more important than, what you pay up front. Ultimately, the best plan is the one with the lowest price for the benefits you're most likely to use.

9. Take prudent risks.

If you are generally healthy and use few medical services, you can cut premium costs substantially by buying ‘catastrophic’ coverage. These usually come in the form of indemnity policies with a very high excess clause, perhaps as much as RM2,000. Assuming this much financial risk can slash your premium by 50% or more, depending on your age. Don't trim your premium by reducing coverage on the other end, though. Make sure your insurance has a high maximum payout, to cover yourself if the worst happens.

10. Match the term of the policy to your needs.

You want the policy to last as long as it takes for your dependents to leave the nest, or for your retirement benefits to materialise.

11. Buy when you're healthy.

Older people and those not in the best of health pay higher rates for life insurance. So buy as early as you can, but don't buy until you have dependents or need the coverage.

12. Tell the truth.

There's no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

13. Comparing plans is tough but necessary.

Unfortunately, there is no such thing as standard coverage in personal insurance. Benefits and costs vary widely from plan to plan. If you have choices, you'll have to examine each one closely and shop around to find the best deal. As long as you're healthy and under 50, insurers want your business.

14. Working couples have more to think about.

If you and your spouse both get health insurance at work, you must sort out whether it makes more sense to have two policies or for one of you to cover the other. If you have kids, you need to decide who's going to cover them.

15. Tax breaks can help.

Medical expenses are not tax deductible. But life insurance premiums are, up to a maximum of RM5,000 p.a.