Life Insurance for First-Time Buyers in Malaysia - Everything You Need to Know

Life insurance is a vital financial tool. In fact, it may be one of the most important posthumously. It could pay for your family's financial requirements, including your mortgage and children’s higher education.

In Malaysia, life insurance is a personal decision, but you’ll want to ensure that your money and loved ones are protected no matter what happens to you. So, here’s everything you need to know about life insurance.

What is life insurance?

Life insurance is a contingency form of financial protection that essentially pays out a lump sum in the event of one's death, disability, or even retirement. This facility can be used to provide financial support for your family or pay off your debts.

As a way to replace the loss of income, it’s fundamentally helpful to protect your family from any debt or unexpected expenses, or if you want to ensure that your next of kin gets paid out when you die.

Types of life insurance in Malaysia

In Malaysia, life insurance generally falls into three major categories. Whole life insurance, term life insurance and savings and investment-linked life insurance.

Whole life insurance

This variation of life insurance is also known as traditional life insurance. It provides permanent death benefit coverage for the life of the insured. This means that your beneficiary will always receive the payout, no matter what age you pass away, once the policy is in effect. However, this is contingent upon you continually paying the required premiums.

Like most things, whole life insurance has advantages and disadvantages.

Advantages	Disadvantages
The cash value can be borrowed against	Higher regular payments
The benefits are protected against creditors	Less flexible premiums
A guaranteed death benefit that essentially lasts for the complete lifetime of the insured	Cash value grows slowly.

 

Term life insurance

Term life insurance is similar to whole life insurance. For both policies, a payout is offered upon the insured party's death. The main difference though, is that while whole life insurance guarantees a death benefit for the lifetime of the policyholder, a term life insurance policy only cashes out if the policyholder dies within a specific time frame.

Nonetheless, the significant advantage of term life insurance is the lower premium cost. However, the major disadvantage is that it doesn't run for the insured's entire life.

Read ‘Whole Life Insurance vs Term Life Insurance’ for a detailed comparison.

Savings and investment-linked life insurance

With investment-linked life insurance, whenever you pay a premium, the death benefit and the savings cash value, or your investment funds are split and invested according to your risk appetite and preferences.

With investment-linked insurance policies, the accumulated amount will earn a specified interest rate over time, and the premiums will gradually rise, unlike with traditional whole-life insurance policies. You may borrow from the cash value of the life insurance policy, withdraw money directly from it if you need the money, or use it to pay the premiums of your policy.

Read ‘How Investment Linked Insurance Can Secure Your Future’ for more of its benefits.

How does life insurance work in Malaysia?

Life insurance in Malaysia is a mature product with a plethora of options both in types and providers. Its cost lowers the barrier to entry greatly, and many have benefited from it.

Since 2018, term life insurance has been zero-rated in Malaysia. For more information on how to claim life insurance, check out this piece (link to how to claim life insurance)

Benefits of life insurance

There are numerous benefits to having life insurance. These are the top ones.

• Life insurance covers your loved ones' living expenses when you die so you don't have to worry about their survival.

• The payouts are tax-free, so the payout your loved ones receive isn't subject to tax and does not have to be declared in tax returns. This means that they will receive the entirety of the payout.

• Funeral costs can be a burden to family and friends after your demise. Life insurance payouts can help cover these costs.

• Life insurance covers chronic and terminal illnesses depending on the policy and provider. Some insurance companies offer endorsements known as riders that can add to your policy to enhance your coverage. Life insurance riders allow access to benefits when faced with a challenging ordeal like a terminal illness.

• Some life insurance policies can supplement your retirement savings. Cash-value life insurance policies though more expensive, accumulate cash value whilst also providing death benefits. This amount may cover some retirement expenses.
  
  

Life insurance Malaysia price

Since we have gotten an overview of the life insurance landscape, we can now answer a few pressing frequently asked questions relating to the actual price of life insurance in Malaysia.

How much life insurance do I need in Malaysia?

Oftentimes, one policy per individual is sufficient. However, you must take on the best policy you can afford, as this will lead to the best possible payouts.

The policy, though, shouldn't be a financial burden for the insured. The ideal rule of thumb is that the policy you buy should be at minimum 10 times your annual income. So if you make RM30,000 annually, your policy should be worth about RM300,000.

In a nutshell, various factors should determine how much life insurance coverage you need, including your age, health, lifestyle, and financial obligations.

How much do you pay monthly for life insurance?

The monthly payments for life insurance depend on a number of factors, including the policy amount, the type of policy and the length of the policy. The monthly payment also determines how big a policy you can take on.

Factors that affect life insurance premiums

Many factors affect life insurance premiums.

• Age: Younger people often pay lower premiums.

• Family medical history: A history of chronic illness in the family can lead to higher premiums.

• Overall health: Poorer health is likely to lead to higher premiums.

• Smoking: If you are a smoker, you are bound to pay a higher premium on life insurance.

• Gender: Women often pay lower insurance premiums than men.

• Lifestyle: Riskier lifestyles also equal to higher premiums.
  
  

What if I miss paying the life insurance premium?

You must make consistent premium payments to your life insurance policy for it to remain in good standing and provide death benefits to your loved ones.

The repercussions of missing your life insurance payment depend on the type of life insurance you maintain.

For whole life insurance, the cash value grows over time. If you cease to pay your premiums, accumulated cash value from your life insurance policy can be utilised to pay them, keeping the policy active. If your policy's cash value is insufficient to cover your premiums for the duration of your life, your policy will expire, and your life insurance payout will cease as premiums are not paid on time.

For term life insurance, a grace period begins after a missed premium payment, after which the policy will lapse if non-payment continues.

Who needs life insurance?

Life insurance is most beneficial for people who want to ensure that their spouse, children, or other relatives are taken care of if they die. If a policy has enough money, it can help pay off a mortgage, cover college tuition, or fund retirement. Thus, anyone who has dependants should consider having a life insurance policy.

How to qualify for life insurance?

The cost or premium level of life insurance can vary significantly depending on an individual's risk level, which is determined by factors like age, health, and lifestyle. Individuals seeking life insurance typically must provide medical records and medical histories and submit to a medical examination.

Some kinds of life insurance, such as guaranteed approval, do not require medical examinations, but have significantly higher premiums and require an initial waiting period before providing a death benefit.

At what age should you buy life insurance?

Most life insurance policies are available to anyone over the age of 18. But the need and, indeed, the cost increases significantly with age. Older people often need life insurance more than younger people.

Tips when buying life insurance

Be transparent about your medical history

It is important not to hide details about your medical history in a bid to reduce the premiums. This is fraudulent and can lead to a cancelled policy and loss of money.

Read the fine print

It is important to know all the details in your life insurance policy. Insurance companies are businesses at the end of it all and are looking to maximise profit, so knowing all the details will save you from potential predatory practices that some companies might have.

It will also save you from unfounded expectations of your policy.

Consider a waiver

A waiver is fundamentally an additional insurance for the premium itself and means that the policy will be paid for by the insurance company if you are sick and unable to work, typically for a period of more than 6 months.

Don't cancel your existing policy till there is a replacement policy is in force.

If you cancel your policy before a replacement one is in force, you risk the chance of not getting a payout in the event that something happens before the new policy takes effect.

There can be more than one beneficiary.

You don’t have to restrict the policy to only one beneficiary. You can include all loved ones who are dependant on you for finances. . 

Do we need life insurance in Malaysia?

The answer to this question is a strong yes. All the benefits outlined above speak to the absolute importance of taking out a life insurance policy.

Speaking of life insurance, Prudential’s life insurance products provide complete protection for all your different needs for securing a safe and protected future for yourself and your loved ones. From term life insurance to whole or an investment-linked life insurance, you can tailor the plans according to your affordability and needs.

Conclusion

We hope this guide has delivered all the necessary information you need to take that all-important step to secure your loved ones' future.