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How to Protect Yourself at Different Stages in Life With Insurance

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We speak with financial planners to get their advice on what people at different stages in life need for insurance coverage.

If you think about your circle of family and friends, there is a good chance that you will know someone that works in insurance. But for a product that is seemingly ubiquitous, the numbers paint a different story.

In 2020, Life Insurance Association of Malaysia (LIAM) president Loh Guat Lan revealed that almost half of the country does not have life insurance, while the National Health and Morbidity Study conducted in 2019 by the Ministry of Health (MOH) showed that only 54% of Malaysians have health insurance coverage.

Apart from reasons of affordability, many do not have insurance simply because they do not see a need. However, this can be a dangerous mindset to have as it does not offer a safety net in the event of  unfortunate accidents or peril. After all, it is likely that anyone will go through life and come out completely unscathed.

Here is what three financial planners have to say about the types of insurance you should be looking to get:

What Insurance Should You Get In Your 20s?

This is the time when most people are settling into life as working professionals, often in their first job. Earning income for the first time can be a thrill, and with disposable income to spend on clothing, dining, hobbies and more, it is no wonder that insurance can often be the last thing on their minds.

marshall wong insurance“I often tell younger clients and friends that the first insurance one should get is a health insurance, or commonly known as the medical card,” says Marshall Wong, a licensed financial planner at FA Advisory.

“A health insurance covers the hospitalisation bill that may cost more than one’s annual income.”

He adds that personal accident insurance is the second most important insurance that young working adults should seek out, given that traffic accidents are the fourth-highest cause of death in the country according to the Department of Statistics Malaysia.

Although a life insurance policy will usually cover accidental death, he notes that the premium for such coverage is “a lot higher” than insurance for personal accidents.

“Young adults may not be able to afford an adequate coverage,” he notes, with this being the reason why personal accident insurance is important.

Although having insurance is always important, Wong acknowledges that many of today’s youths may be of the mindset that it is unnecessary given their age. He warns that a lack of insurance could potentially lead to financial ruin if an unfortunate event occurs.

“Young adults need to know that not all insurance is expensive, and not all insurance agents are out there to take their money,” he advises.

“There are plenty of affordable insurance that may be suitable for them. If you cannot afford an investment-linked medical card, you may opt for a stand-alone medical card. The standalone medical card may not have as many features as an investment-linked counterpart, however, it may cover the basic necessities, and it may cost 50% lesser!”

When quizzed about niche forms of insurance, Wong says that it is more important for young adults to “stay nimble” rather than opting for unnecessary protection.

“Hire a fee based financial planner to go through your financial position as the exit cost of some insurance products can be very high,” he suggests.

What Insurance Should You Get In Your 30s?

By this time, most people should be well-established at work and have built up a solid base in terms of finances. This is the period in which many start taking on more financial responsibilities and assets. So where does insurance factor into this?

Pang Wan Khim insurance“In your 30s, your financial status is likely to be more stable,” says Pang Wan Khim, a licensed financial planner with VKA Wealth Planners.

She recommends a life insurance policy for those who do not have one at this age, as most people will have plenty of bills and commitments to pay down, such as cars, houses, and even marriage.

“With many financial responsibilities, and good health likely still on your side, you should get a life insurance policy to protect your loved ones’ future from life’s uncertainties,” she says.

Such policies pay out a lump sum of money to beneficiaries in the event of premature death. The idea is that death benefit should be sufficient to replace future income loss especially if you have a spouse who solely relies on your income. The total amount will cover the expenses and obligations outstanding such as funeral costs, medical expenses, debts, children education or living cost for your loved one.

“This gives your family financial continuity so they do not have to struggle and have more time to structure the financial status or fill the financial gaps,” explains Pang.

With most people in this age bracket acquiring assets like property, vehicles, and businesses, the upfront cost usually takes decades to accumulate. This is where financial assistance from banks come into play, with loans usually taken to acquire these assets.

“But as a borrower, if you pass away, all the debts will still need to be repaid in full by your estate,” she warns.

“Life coverage plays a crucial role in this situation and most people tend to overlook this when planning.”

She also believes critical illness insurance is very important as it helps to cover insufficient limits on hospitalisation plans as well as costs not covered on such plans, as well as non-medical costs like nurse care, transportation expenses, income replacement, medical equipment or even time off while recovering.

Although she is recommending guidelines for those in their 30s, Pang believes that insurance should be bought as soon as you can afford it, regardless of age. It goes without saying that the best time to buy is also while you remain healthy, but ultimately, these are just best-case scenarios as life is not the same for everyone.

“My general recommendations will not work for everyone because our situations are unique and financial statuses are different,” she observes.

Pang also recommends investment-linked insurance because most people tend to be busy with work and family, and it provides flexibility and peace of mind. With the cost of insurance generally increasing, she suggests using some of the investment proceeds to cover this increase in later years.

“The design of this product does offer a structure that helps us to gradually accumulate value which may be used to help us fund for the future when charges are generally higher,” she adds.

“However, as this is still an insurance product, the main focus should still be about protection, not growing your wealth.”

What Insurance Should You Get In Your 40s?

Individuals in this age group should be firmly at their peak in life. Many will have assumed positions of seniority at their jobs or built a family. With all these added dependents, not having insurance by this time can often be concerning, with premiums usually higher due to the advanced age of potential buyers. So, have you missed the boat by the time you hit your 40s?

Nicholas Wong insuranceNicholas Wong, a certified financial planner with IPP Financial Planning Group, believes that it is “never too late to get insurance”, but concedes that it is advisable to start getting insurance at an early age.

“It is always recommended to get coverage as soon as possible if one can afford it as one can only obtain insurance when healthy,” he shares.

The higher risk of developing illnesses or other serious health conditions means that for individuals in their 40s, it is now or never when it comes to buying insurance, especially if they are still healthy. Those with pre-existing conditions may find it harder to purchase insurance coverage says Wong.

“Your plan might come with exclusions or premium loading, which is paying more due to illnesses such as hypertension, for example. If one has diabetes, one generally can no longer purchase medical or critical illness coverage.”

“Thus, it is better to get a plan when you are younger as the premiums are lower and there is less risk of having exclusions or insurance coverage being denied,” he concludes.

For middle-aged people looking to get insurance for the first time, there is still time as alluded to earlier.

“For insurances, we always look at the needs of the individual and have to select the appropriate type of coverage,” says Wong.

“For example, if they have dependents such as young children or old parents, life insurance would be a need unless they have surplus liquid cash around.”

Wong, who formerly worked in insurance, recommends critical illness and disability insurance as a safety net against a loss of income arising from unfortunate events. This is because those in their 40s are likely to be at the peak of their career in terms of earnings and income replacement coverage will help to mitigate against unfortunate life-changing events.

“For critical illness cover, the recommendation is three to five times of the annual income or annual expenses,” he says.

“This means that while one is recovering from a critical illness, they would be able to take three to five years off work and not worry about expenses or dipping into their savings.”

Wong also recommends a 20-year term plan for those in their 40s as it is both affordable and provides large amounts of cover.

“A 20-year term plan with RM500,000 for life and total and permanent disability cover with RM100,000 critical illness cover can start from approximately RM200 a month,” he continues, noting that premiums may differ depending on plan benefits and type.

Wong suggests that one should usually budget 5-10% of total income for insurance payments, with this amount set aside to “protect or guarantee the remaining 90-95%” in the event of death, disability, critical illness or hospitalisation.

“Medical insurance which gives access to private healthcare is also something one can consider as it gives you more options when it comes to medical treatments as not everything is covered by our government hospitals,” he adds.

Insurance As Wealth Management

angie ng insuranceWhile many may look at insurance purely from a protection standpoint, it may also help to picture it as a mechanism to manage or preserve your wealth. Here are four ways which Angie Ng suggests insurance can be used for this purpose:

1. Wealth creation
“Part of the premium paid each month can go into cash value and there are also some products available that will help people who prefer very conservative savings instruments to build their wealth slowly and steadily.”

2. Debt cancellation
“There are insurance policies from which the proceeds can settle outstanding loans on assets like houses, cars, businesses and others in the event that they are unable to repay the balance.”

3. Wealth protection
“When risk is incurred, medical treatment, critical illnesses or total permanent disability occurs, insurance can protect their wealth as the treatment and insurance proceed can ease their financial burdens without
touching their hard-earned money.”

4. Wealth distribution
“In the event of an untimely death, life insurance policies can help to settle a person’s outstanding taxes, estate administration fees, and most importantly, leaving a legacy behind for their loved ones.”

In addition, insurance can also be used to mitigate the risk of natural disasters, no matter how rare or unexpected they may be. According to the Department of Statistics, the 2021 floods caused total losses of RM6.1 billion, with RM1.6 billion of damage to residential properties, RM1 billion to vehicles, RM900 million to the manufacturing sector, RM500 million to business premises, RM90.6 million to agriculture, and RM2 billion to public assets and infrastructure.

“If you are exposed to risk, for example, flooding in low lying areas or landslides in high hill areas, it is wise to include additional peril in your insurance policy to cover for natural disasters or other events,” says Ng.

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