Whole-life insurance is fairly self-explanatory. It’s basically an insurance contract that goes on almost forever! Well, at least until the day you have to claim from it.
Let’s look at what it insurance can do for you.
First, it gives you death coverage, either accidental or non-accidental. As long as you have drawn your last breathe, you have fulfilled the conditions and your beneficiaries are eligible to claim from the whole-life insurance policy’s proceeds. You can even claim if you committed suicide, but make sure your policy has been running for at least one calendar year.
Second, a whole-life policy also comes with TPD. Disability benefits are mentioned in the previous section on Personal Accident.
I shall outline the term TPD here once more:
(a) becomes total and permanent and such that the Life Assured is incapable of ever engaging in any work, occupation or profession in the future to earn or obtain any wages, remuneration or profit; or
(b) is deemed to be caused by any of the following:
(i) total and irrecoverable loss of sight of both eyes; or
(ii) loss of use of two limbs at or above the wrist or ankle; or
(iii) total and irrecoverable loss of sight of one eye and loss of use of one limb at or above the wrist or ankle.
(c) Or by being unable to fulfill any 3 of the following activities:-
i) Transfer
ii) Mobility
iii) Continence
iv) Dressing
v) Bathing/Washing
vi) Eating.
Also, a whole-life policy allows you to attach various riders, such as Critical Illness, female illness-related, accident, waiver of premium, payor benefit and many more.
Most of the conventional non-investment-linked Critical Illness policies in Malaysia are also packaged as whole-life policies.
A whole-life insurance policy is usually a participating policy. This basically means that the premium you pay will be pooled in a fund together with all other policyholders. The insurance company will then invest the fund and any returns made from such investment will be redistributed to the policyholders in the form of cash bonuses. However, unlike investment-linked policy, most whole-life insurance policies do not invest in the equity market.
Therefore the risk you take is very minimal and hence, the return you get from a whole-life insurance policy is considerably less compared to an investment-linked policy. In a whole-life policy, the Company must pay a guaranteed sum, even if it makes a loss in its investment strategy. So, one way or another, your money is not going to vanish into thin air as long as the insurance company stays solvent.
This is why I strongly suggest that you check on the solvency and liquidity of insurance company before taking out an insurance policy. The latest insurance company annual report is available from the Bank Negara Malaysia’s website at www.bnm.gov.my. A concise version of the figurative report is included at the end of this guide for your reference.
Term Policies
Term insurance policies are very much like whole-life policies. A term policy basically provides death benefits and optional TPD benefits, without the profits or cash value portion. This means 100% of your premium is used to pay for the insurance charges with no allocation for investment. This is also known as a non-participating insurance policy, which means that the insurance premium paid by the policyholder does not participate in any investment or income-generating activities.
If your budget is tight and you are looking for a short-term risk management tool, this could be one way to fund your strategy.
Also, while we are on this topic, I would like to touch on a sensitive subject, especially if you voice your concern to your trusted insurance agent on the ‘return on investment’ of your insurance policies. Some insurance agents want you to believe that cash bonuses gained from your insurance policies are one of the best things you can get from your life insurance policy.
However, I would prefer to look at the income-generating portion of whole-life policies as a method of financing your insurance charges, rather than as an avenue to accumulate wealth. In fact, it’s not a very effective way to generate wealth. So, it would be an unrealistic objective if you actually try to make money out of your whole-life insurance policies or, for that matter, any insurance policies.
Always remember this: “An insurance policy is and always will be a risk management tool.”
You might want to read these too...
- Surrendering and Replacing Your Insurance Policy
- Investment-Linked Insurance Policy: An Overview- Part 1
- Malaysia Endowment Insurance
- Investment-Linked Insurance Policy: Premium Allocation- Part 3
- Investment-Linked Insurance Policy: Insurance Charges- Final Part
- The Malaysia Insurance Planning Guide Part 1: Needs or Wants
- Great Eastern Rewards RM 900 Million
- Comprehensiveness of Coverage
