1) May I just enquire what is your definition of costing too much?

2) Has anyone actually approached you with a plan before?

For example, assuming the average 30 yr old Male, a RM200k Non-par life plan would probably cost roughly around RM200 a month, RM2,400 a year. After 20 years, your cash value for this policy would be exactly the same as the amount of premium you have paid plus with an additional 10% bonus Guaranteed. Yes, its spelled out clearly in the contract.

A Term Life plan with the exact same RM200k sum assured would be roughly half of the price above but with 0 cash value at the end of 20 years.

If you are a left brain person, here are the number crunching part.

Non-par Life plan
RM2,400 a year x 20 years = RM48,000 + 10% Bonus = RM52,800 Guaranteed.

Term Life plan
RM1,200 a year x 20 years = RM24,000 Burnt with 0 returns

So assuming you invest the extra RM1,200 yearly in the bank with the average FD return rates of say 4% for 20 years (Banks are curretnly offering 3.7-3.9%), the value you get back at the end of the day is RM37,163.04.

However, since you say you are good with your invesment and you can get say 7% instead of 4% then you will get RM52,638.21. Roughly equivalent of what is guaranteed for you if you chose the first plan.

The rough data taken from Bank Negara website for the FD rates for the past 10 years shows the lowest was around 3% the highest around 11%, divide those 2 and you get around 7%. So with that, would it be fair for me to say that saving money long term with a good insurance company will almost always give better returns than FD with banks? If you had to make a decision on choosing where to save your money for 20 years, which would you choose?

Of course if you feel that you can definitely get much better returns that just a meagre 7% then go ahead. However, will there be risk involved? compared to this risk free 7% guaranteed which on top of the returns, you also get a life coverage of RM200,000 for that 20 years almost considered 'free'?

If you are a right brain person, here's some ideas for you to think about.

People whom are self-insured are taking a big risk whereby they save and then only create wealth.

People who realise the importance of insurance will not want to take that risk, they create wealth first then only start saving.

If nothing happens to them along the way then congratulations, you're well on your way to a good retirement. But what if something happens along the way and they decide to go on a long vacation and never come back? Would your family be able to survive if that person is a breadwinner of the family? How much savings have you saved so far? How long can it last?

Is there a reason why you would not want to create this instant wealth of RM200,000 by just putting aside RM200 monthly? Even if you're a millionaire, imagine buying a bigger policy of RM2 Mil, by paying RM2,000 a month. Instant wealth of RM2 Mil to your family should you go on a long holiday even if you've only paid for the first 2 months of RM4,000.

There's no way that you will stand a chance to lose out if you have adequate insurance. The problem is are you even qualified to buy a life policy? You might be healthly today, but what if you're very sick one day? Do you think you can still buy insurance even if you have lots of money? The answer is no, because you're not insurable anymore.

Just think about it and let me know if what I say is wrong and not true at all. I am always open for new ideas. But if you agree with what I have said and would like to actually discuss further on this topic. Feel free to pm me and we can further exchange ideas.

Zarth,

Before I answer your question, let you answer some questions for me.

1) How much life insurance do you buy? What is your payout?

2) What is your definition of right amount of life insurance coverage? Payout of 10 years of income? Payout of 20 years of income? Or, it is based on years of expenses? Please don't tell me that you could NEVER buy enough life insurance.

Dreamer

1) I personally have 3 policies. I'm roughly covered for life a total of more than RM350,000 payout for natural death/TPD and RM500,000 if its accidental, together with a disability income of RM3,000 monthly, RM200,000 for critical illness and a medical card with a lifetime limit of 300k. I bought all these policies within the past 3 years. This is on top of what the company is already giving me.

2) Here are some of our basic definitions:

a. 3-6 months of emergency fund (liquid cash form)
b. Critical Illness coverage of at least twice your annual income.
c. A medical card to cover hospitalization and surgical expenses.
d. Life insurance and Disability insurance coverage of at least 10 times or your gross annual income.

How we derive it? Based on a research and survey done by asking all our clients what is thier wants and needs.

Zarth,

1) Let's start with basic background. My philosophy is life insurance is for risk management. It is used to protect against economic loss and to sustain life style in case of some disaster. So, the amount of money aka payout need to be large enough so that it matters since I have good savings. But, it should not be so large that my family live a better life when I die as opposed to when I live.

2) Most life insurance/financial planner plan based on years or months of income. Which is fine for most people because most people live from paycheck to paycheck aka they save nothing. But, it is not a correct and accurate way of doing planning. Years or months of expenses is a more accurate way of doing planning because it does takes into account of people that do save a lot of money.

3) I save 50% of my gross income. I live in a life style that only use 25% of my gross income (25% = tax + EPF). After doing this for 10+ years, I am self-insured.

<< a. 3-6 months of emergency fund (liquid cash form)
b. Critical Illness coverage of at least twice your annual income.
c. A medical card to cover hospitalization and surgical expenses.
d. Life insurance and Disability insurance coverage of at least 10 times or your gross annual income.>>

a) I am covered with my savings

b) I am covered too with my savings

c) I am covered with my savings

d) I lived on 25% of my gross income. So, I have at least 10 years worth of my living expense.

Insurance does not cover the threat of unemployment. Savings and investment does.

As for your claim of insurance is good investment scheme, let me show you my investment scheme in Malaysia for comparison.

A) Emergency fund
FD -> 3.7%

B) PBBank stock
Annual dividend RM0.40 = 5.8% dividend yield for me since I bought it at $6.85. I buy good high dividend paying stock when it is on sale.

Your investment growth is 7% with unknown risk factor. My investment is paying 5.8% dividend every year. Who is better?? Who can say?

Then again, I have access to mutual funds in USA which is better diversified and lower cost than anything that is available to insurance in Malaysia.


Dreamer

I can fully understand your viewpoint. Some people work hard all thier lives just to give the best of everything to thier family, most work hard just so they could make a good living and make sure the family is quite well off, while some selected few actually think more about themselves which I don't blame at all, who's to take care of you if its not the younger you now. Either way, insurance in a way can help those 3 different types of people in different ways.

Yes, both of the methods are just looking at the same thing from different angles. I always ask which method they prefer and most would choose the simpler method of just using gross income, while only some actually want the full breakdown and details involved in the income & disability expenses analysis.

I congratulate you for being the few that actually have such great self-discipline. Living with only 25% of your income for over 10+ years and saving the rest is really a commendable act. I'm sure you've already achieve financial freedom by now and living a good semi-retirement life if you wanted to. A perfect example of a save and create wealth approach.

But just looking at it from another perspective, the reason you have to save 50% of your income is because if you don't and something happens to you along the way, then that amount would not be large enough to support your family's standard of living. If you have maybe taken like 5% of that income to get a life policy, then maybe you wouldn't need to save so much, perhaps maybe 40% and spend 5% more on yourself, you know go enjoy some nice candlelight dinner with your wife and kids kinda thing. At the end of the day, you would still be in almost the same financial position you are today as the cash value inside the policy is almost equivalent of what you have saved. This is the create wealth and save approach.

You talk about risk management, but which approach do you think is more risky? Should anything happen to you before you are here today, which approach would be able to help maintain your family's standard of living better? If I know that 20 years from now, that I would be in the same financial position with or without insurance, which is the better risk management method?

Again I congratulate you, you are the very few among us that can actually proudly say I'm self-insured. However, let me give you another point of view. For discussion sake, say you are hospitalized yesterday due to an accident and had to perform some minor surgery. Well no problem, it definitely would not effect much of your savings. But what if something more serious strikes, critical illness. How big of a chunk off your savings would that cost you? 3-5 years less to spend? 10? All I know is, it is definitely not cheap at all nowadays with medical cost rising year after year.

Another point of view to look at is when you are fully retired. You've saved your money diligently all your life, now it the time when you finally get to enjoy your fruits of labour. How young are you? 50's but still feeling as energetic as a 20 yr old ready to take on the world. You have retirement income that could last you at least 30 years down the road. There's really nothing that could hold you back from this new life of enjoyment... or is it? Have you ever notice why most retiree's actually dare not spent thier money unnecessarily? In the olden days, they would probably keep it in a Milo Tin stashed somewhere under the bed. The reason behind it is because what if they are hospitalized one day and need to spend a lot on medical cost? Most would not want to burden thier children, so they always have this fear inside that is holding them back from spending thier hard earned retirement income. So how do you overcome this problem? Would a simple medical card coverage which would cost just a fraction of your total retirement income you have be a possible solution to you? Would it give you the peace of mind to actually spend a bit more on yourself without the worries of having not enough later on?

So what I'm saying here is insurance will help you retain your wealth so you will always be on the positive side never the negative especially when you start young and healthy and the cost stays fixed for the rest of your lives.

I have never claimed that traditional insurance is a good investment scheme, however what I'm claming is that traditional insurance is the best form of savings and protection period. There is no other product out there in this world that could give you instant wealth for a fraction of the cost should something happen to you period. ILP on the other hand could be an alternative to an investment and protection scheme.

A) Best place to put your emergency cash. If its a sizable amount, might consider breaking it up to a few different banks. For example, you have 20k, instead of putting it all in one bank one account, consider dividing it into 4 portions of 5k each and puttitng it in separate bank accounts. Helps when you might not need to withdraw all so that the rest can still enjoy the interest.

B) Does risk even come into the picture at all when it is spelled out to be Guaranteed in the contract? (Unless World War 4 falls under the unknown risk part) and on top of that, my plan pays you RM200,000 cash if you decided to go on a long vacation and not come back. How much do you get for selling off the stock on the open market? You'll be very lucky if your family actually gets to sell it off before it gets frozen for 6 months to 1 year or longer still while waiting for the court to decide who gets what. Can there even be a comparison of which is better?

All I'm saying is go ahead, continue to invest in your shares, invest in your properties, invest in unit trust and all sorts of other investments that you can actually monitor and control. However, for things that are out of your control, consider a life insurance policy to cover the unexpected situations.

1) Before I reach my current level of savings, my job provide life insurance, medical, personal accident coverage far exceed what you define as adequate coverage at no cost.

2) 200K will not make a difference financially to my family. So, a 200K life insurance makes no sense to me.

3) Typical medical conditions will not hurt me financially either. The only significant and worthwhile financial risk to me is critical illness.

4) BTW, we had our candle light dinner and travel while living on my 25% gross income. We just do it less regularly and spend it wisely. Aka, do it while it is on sale and it is a good deal.

My point is if you know what you want and shop wisely, you can get a better deal. In my case, my only concern is critical illness. So, if I focus on buying insurance that covered mainly critical illness, I can get better payout with same amount of money as opposed to an insurance with many unnecessary coverage that I do not need.

Dreamer

to whom may concern,

wat is the limit protection for pa? can just choose 1 milion ringgit coverage when annual income onli 10k?

medical card cover bill for sickness onli or also include accident?

wat 'full reimbursement' mean? no need to pay at all or pay first then claim later?

I think one thing that we should take into consideration is the inflation of malaysia.. well... Living expenses inflation... Education fees inflation.... MEdical fees inflation.. I think we should take that into consideration as well.. As it is a main factor to determine weather we have or haven't have enough insurance... Well... This is not 100% correct, it is just that we could be better prepared... It is better MORE than LESS when you need it the most right? Another thing is that... the expenses that we take into consideration.. I think we should increase it every year.. As our salary increase everyyear right...And i think everybody agree that when salary increase, most people do use more and spend more right? Hmmmm.. That is what i am talking about.. we should take that consideration in as well.. Another thing is that... This kind of things, i mean risk planning kind of thing, should be reviewed every year as our financial situation might be totally out of what we have predicted... Right? Hmmm. Just piece of advice... And insurance agent out there.. I thought you guys attend RFP? How come didn't take that into consideration throughout this discuss? weird... Yet... Just my 2 cents

Another insurance agent that does not do his/her homework.

Do your homework and figure out where you are WRONG in your thinking.

Of course, it is always better to give you more money.

Dreamer

FYI i am not insruance agent
Can you point out which part i am wrong?
I will be more than happy to learn from you.
thanks.

Dreamer,

How many people can actually do like what you did.
Lets assume average income is RM2K. I doubt that he will survive by practicising your method.

ohayogozaimas,

Start by learning how much insurance is TOO MUCH. Zarth has given some reasonable rule of thumb of how much insurance that a person should buy.

Civil,

1) My goal is to be rich and Financially Independent Retired Early (FIRE). It is NOT to be average and poor.

2) Who is he in your post?

3) Read the salary thread. There are people that save 1K per month with RM 2k per month salary. Are you telling me, this kind of people cannot survive?

4) In Malaysia, in general, people buy TOO MUCH insurance fro their own good.

Dreamer

This post has been edited by dreamer101: Jan 17 2007, 10:24 PM

Hmmm.. I wonder...What if the people... Start working for 1 year.. then diagnosed with CI? I wonder will the bank save him or the insurance save him? what happened to the hospitalization fees and the living expenses after that? If you claim that you company did give u that benefit.. Fine... And please check with you company, what hospitalisation benefit doyou have.. And how much is it? I wonder how much one operation need? For some illneses you even need 2 to 3 operation. You are now healthy that is why u said all this... Insurance is like a parachute... When you need it and you don't have it... You won't need it again. And dreamers... I believe youngster out there... oni 2 out of 100 will be like you... I deeply congratulate you for being self insured.. But have you consider the possiblity of all this that are list down previously happened at once.. Will your saving be enough? Consider it again. And... What happen to your living expenses if u are not able to work anymore? charity? sigh... If you like to keep saying that insurance agent like to earn people money... Who don't need money for a living? sigh.. Don't be so selfish. I think what insurance earn is what they should get... Do you know that they need to serve you forever even if you buy the smallest policy from them? Isn't that worthwhile give that a little bit more commission? I also dunno lah... this thread is meaningless to me anymore.. Just like people bargaining on the street.. Hmmm.. You guys have fun lah...

No doubt some insurance are needed eg. medical and life to get financial protection/compensation if any unforseen circumstances happened. But one thing for sure, insurance is not a magic 'Aladin'. Although it gives protection but it has its scope even for medical insurance, it also has its limit, you can't claim more than RMxxx for hospitalisation and up to certain amount of medical expenses, more than that amount you have to bare your own. So even you have bought insurance, you still need to 'insure' yourself.

I am not saying insurance is not good, indeed certain insurance are essential nowadays especially sky-high medical expenses. But every insurance has its scope, it only covered the scope it offered. Out of it, you still need to bare it yourself.
One of the real example as I said before, a friend of my friend went missing for years now (suddenly), his dependants can't claim a single cent from his life insurance since by law a person only can be declared death after 6-7 years missing.

spending bout RM300 a month on a RM200k coverage is bout as max u can go. thats wut i think anyways... anything more than that.... consider it alot.... but u will increase sum assured if u have property and a wife. house loan without insurance is dumb. if anything happen to u at least ur death can pay out the house and make ur loved one's life abit easier to take. its call life planning....

my 2 cents...

dreamer, not everyone is well verse with life planning. it takes time to learn. u were once learning rite? and still are now. learning never stops... so chill la bro....

ohayogozaimas,

1) Please write in paragraphs.

2) You do not understand the very first thing about insurance?? What is insurance for?? It is for risk management. Aka to protect a person from financial loss in case of that event happened.

So, you buy insurance in term of

A) The risk aka probability of that event will happen -> This is dependent on your age and your profile

B) The financial impact to your life and family.

Common sense tell you that you cannot and should not buy insurance to cover every possible risk. If you do, you will ended up with NO savings and you are not protected against unemployment.

3) My complain about insurance agents is they are like you. They ask you to buy every kind of insurance and up to the maximum amount. They did not do their job and assess 2 (A) and 2 (B). If you only earn 10K per year, does it make sense for you to have life insurance of 1 millions? Of course not.

4) For someone that knows so little and claim that he/she is not an insurance agent, why the hell do you try to persuade people to waste money on insurance?

Dreamer

Chloelew,

200K coverage on what?? Basic life insurance? Or, life insurance with some disability protection?

For young people, the worst case situation is NOT death. It is disability. You disabled and cannot work but lived for a long long time due to your age. So, buy life insurance with some disability coverage if you can.

Dreamer

Let say one's family household income is 3K with 2 childrens. To save 50% of their income is not easy as someone might think.

In basic financial planning, 5% goes to insurance and another 5-10% goes into savings. I think this formula is suitable for most of the people.But of course, if you can save more than that,its better.

1) Who say trying to be rich is easy? If it is easy, average people will be rich.

2) 5% goes to insurance and 5% to 10% to savings. I do not think so. Most people has certain level of insurance from their jobs. They may need a bit more insurance. Insurance is definitely should NOT be at the same level as savings. If you buy as much insurance as your saving, you are buying too much.

3) Your basic financial planning is WRONG. It is created by insurance agents and insurance companies. Definitely, not the same system used by other more advanced and financial literate countries.

4) Zarth's formula of having 10 years income coverage with life insurance makes a lot more sense than your 5% of income. Who says that you must donate 5% of your income to insurance company if you do not need that much coverage?

Dreamer

This post has been edited by dreamer101: Jan 18 2007, 11:03 PM

just bought insurance. i feel great becoz i know wat i buy(compared to some of my friends who paid life insurance 200 per month onli to know they will receive big money after 20 years). i bought 3 separate pa, medic card and CI+life insurance which cover around 200k for each and cost me total 2k per annum. many thanks for those educate me here especially to dreamer and zarth. i've learn many thing during my quest for suitable insurance

i earn 2.5k and save 1k per month. i no doubt i can survive in the long run. by next 10 years i'm sure i can self insured. wat disturbed me is wat happen before i reach the point. i wont feel like that if i have rich famili who can support me. and i dont want to gamble my future

thats the reason. i don want single event destroy my hope, my future. if i cant strive, my last hope is not burden my poor famili