Insurance is an interesting product. Now more and more people are buying it. And many have bought it without them realising it!
Basically insurance comes in two classes:
- Life insurance – Protection of the life and limb of the assured
- General insurance – Protection of property, businesses and enterprises.
The most common general insurance in Malaysia is the motor/vehicle insurance. A car owner must buy an insurance before she may renew her vehicle’s road tax. Yet she fail to realise the scope of her plan. Did you know that if your car is driven by another person, your vehicle’s insurance does not cover any accident or incident? The insurance coverage exists while your car is used by the named driver.
Life insurance is generally “a contract which pays an agreed sum of money on the happening of a contingency (event), or of a variety of contingencies, dependent on a human life”. When you take out a life insurance, you create an agreement with an insurer. Under certain events, the insurer will pay you a sum of money.
Say you take out a life insurance product with Prudential. Under this plan, Prudential agrees to pay you RM50,000 when you are diagnosed with one of the 36 critical illnesses. In return you agree to pay Prudential RM50 per month until such event has happened. This is an example of a life insurance.
Based of the terms of that contract, Prudential is not obliged to pay for your medical and treatment fees. This is where popular misconception comes in. Having an insurance does not mean that an insurance policy will pay for your treatment. Similarly, in the event of an accident – whether resulting in temporary or permanent disability – Prudential is not obliged to pay.
Put it this way: you walk into a Perodua showroom to buy a purple unit of MyVi SE. After settling the down payment and having the loan approved, you drive out with the purple MyVi SE registered as “QAA9828E”. You cannot ask for the Perodua Alza nor the Perodua Viva. You cannot drive out with the MyVi 1.5 or the red MyVi SE. Why? Because you did not buy them – save the unit allocated to you.
But why would anyone want to insure their life?
Protection. Peace of mind. The purpose of insurance, as Brian Tracy puts it, is to pay for costs and expenses you cannot pay off with cash in your pocket.
When a person is diagnosed with a critical illness, a series of events kick in.
First, you will need cash for the treatment. Medical bills see the highest inflation rate around: 30%-40% per annum. This is reflected through the multiple breakthroughs in the field of medicine, rising cost of transportation and production as well as increase in skilled manpower. At the same time, the population is increasing – thus creating more demand for healthcare providers.
Second, the person may not have sufficient savings. It is not impossible to hear a healthy male in their late 20s collapsing and passing away. In a rare case, a newly born was diagnosed with cancer. Having an insurance plan gives some room to breath.
Third, not all employers provide compassionate leave for their workers. The smaller the company, the less likely the employer can retain that employee. You can guess: this means a loss of income. Wouldn’t that just add stress to the family and person herself?