What is insurance and which one do I need?
Here’s a challenge for you: find an umbrella. Open it and put it over your head. Now, do you feel more confident to walk outside? Because no matter rain or shine, you are protected. That is what insurance coverage will do for you.
What is insurance?
While the umbrella covers and protects you against bad weather, insurance covers you against potential risk of accidents, loss of income, assets or even life as well as other calamities coming your way. Think about it this way, if anything were to happen to you today that will affect your ability to earn, how will you provide for your family and the cost of the medical assistance you will need to recover? Insurance coverage can provide you the comfort of knowing that in that event, you and your family will have a safety net to fall onto.
An insurance plan is a conventional product while the Islamic version of insurance is called Takaful. There are many types of insurance and takaful providing coverage for various types of risks so today, we will help to identify which ones are most relevant for you.
What are the types of insurance plans are available?
Generally, insurance is split into life insurance and general insurance.
🏥 Life insurance
It provides coverage in the event of death, illness, disability and hospitalisation. The typical coverage period is for more than a year and the premium payment can be paid monthly, quarterly, semi-annually or annually depending on your choice. These are the different types of life insurance plans that you can consider:
● Whole life insurance
- as the name suggests, the coverage is for the rest of your life with a cash value feature
● Term life insurance
- specific time coverage, usually up to 30 years.
● Endowment insurance
– life insurance coupled with savings plan, usually shorter coverage period of 10-20 years
● Critical illness
– provides you a lump sum payout in the event you are diagnosed with one of the 36 critical illnesses such as cancer, kidney failure and stroke, just to name a few
● Disability insurance
– provides you the benefits on a periodic basis if you develop physical or mental disabilities
● Investment-linked insurance
– is a hybrid insurance that provides insurance protection and an investment component invested into an investment fund based on your risk appetite. An education insurance plan is a form of investment-linked insurance where it provides death and permanent disability coverage with an investment component to build an education fund for your child
If this is your first life insurance subscription, you might not be able to afford high premiums. You may wish to start with a term life insurance as it is slightly more affordable compared to a whole life insurance and investment linked-insurance.
Once you are more stable financially, you may want to choose whole life insurance as it provides a cash value feature which can act as a form of savings for you. However, as health risk increases as you get older, perhaps it is wise to add other coverage such as critical illness if it is not already part of your existing life insurance plan.
🏡 General insurance
General insurance protects your personal belongings against loss due to theft or damages. Examples of general insurance include travel, theft, medical, personal accident and fire insurance.
- ✈️ Travel Insurance protects you against losses that you might incur during travelling such as lost luggage, delays and medical emergencies overseas
- 💸 Theft Insurance provides coverage against losses due to burglary or theft
- 🏥 Medical Insurance provides you coverage for your medical expenses such as surgery and hospitalisation bills due to illness
- 🤕 Personal Accident Insurance covers injuries due to accidents such as burns or fractures, and will cover the costs for hospitalisation and rehabilitation treatment
- 🔥 Fire Insurance is a property insurance that protects your home if it gets damaged or destroyed by fire
The coverage period for general insurance is usually one year and the premium is paid as a one-off or on an annual basis.
Which insurance plan do I need?
There are several factors to consider in deciding which insurance you will need now and which ones can wait.
You should have at least one insurance policy that covers against potential illness and loss of income due to accidents or death. Especially those self-employed as you will face greater fluctuation in income, it is wise to get protection against any emergencies. In this case, you can consider a term life insurance as it provides the necessary basic coverage.
Personal accident insurance is a common choice for an insurance plan. If you are constantly travelling on the road while working, a personal accident insurance will provide you with the necessary protection if you meet with unfortunate incidents on the road that lead to injuries, permanent disability or even death.
Once you sign-up for an insurance plan, particularly health insurance, you should also buffer for an increase in premium depending on your age and the increased risk of illness. Hence, it is advisable for you to register for an insurance plan as early as possible before any health risk appears.
Last but not least, check your existing coverage before signing up for a new insurance plan to avoid overlapping coverage. For instance, if your life insurance plan also includes coverage for critical illness, then you might not need a separate medical insurance coverage. No harm speaking to a financial advisor to get some advice on which plan suits your current needs better.