Thinking of buying life insurance or family takaful for yourself? Is life insurance too expensive for you? This article will help you learn how to buy the cheapest life insurance for you.
Life insurance can be expensive because many people only consider buying the full package life insurance. The complete package life insurance consists of death protection, medical protection and a savings module. But you can also buy the AirAsia of life insurance and save lots and lots of money when you buy only the most essential thing that you need.
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AirAsia is one of Malaysia’s most prominent international success stories in which Tony Fernandez had built the best low-cost airline in the world. We will explain how life insurance can be cheaper for you using AirAsia’s business model as an example. Tony Fernandez has made flying less expensive by splitting up the price for a ticket into flight, food & beverage and luggage. The table below shows different versions of AirAsia flight and compares it to a full package airline ticket from Malaysian Airlines.
Cost of a flight ticket from KL to Tokio
|1||Malaysian Airline||30kg||Included||RM 2,414|
|2||Air Asia Premium Flex||30kg||Included||RM 2,175|
Why are we explaining to you how AirAsia works? One of the untold secrets about life insurance is that you can build your life insurance by buying the component you need only. You can break down life insurance into three parts:
1) Financial Protection for death
2) Medical & Health Protection
3) Retirement & Savings Helper
You do not need to buy all three and pay a lot of money. If you know what you need, you can purchase only the protections that you need and save lots of money. Life insurance is cheaper if you only need 2 of the three components and buy them separately because you are not paying for the element that you do not need. The below table shows some example of insurance products that you can buy for each of the three life insurance elements.
Components of Life Insurance and Alternatives
|1||Financial Protection for death||Pays money in case of |
death or permanent disability
|- Term Life Insurance|
- Personal Accident Insurance
|2||Medical & Health Protection||Pays money for medical |
|- Standalone Medical Insurance|
- Personal Accident Insurance
|3||Retirement & Savings||Pays a fixed amount of|
money after some time
|- Fixed Deposit|
- Funds, Unit Trust, Bonds
- Apartment, House
This article will describe in detail the life insurance element of Financial protection for death. Read our other articles to learn more about alternatives for Medical & Health Protection and Retirement & Savings.
Financial protection for death
So the first big part is financial protection in case of death. This protection pays out a large amount of money to the family when the main income maker dies. This protection is what most Malaysians understand as life insurance. That is why it is called life insurance. 🙂 The Shariah-Law compliant version is called Family Takaful. The name is more to the point because it better describes that the insurance will benefit the family and not the person who died.
For example, if a working father of a family dies, then the rest of the family is left without regular income from the father. If the dad has bought life insurance, for example for RM 100,000, then this money would be paid out to the family. The RM100,000 can then help the family to adjust and pay for the ongoing costs like rent, food and car loan.
The money is called Sum Insured in insurance language and is not only be paid out in case of death. Most often, life insurance will also pay out some part of the Sum Insured if a person becomes permanently disabled through an accident.
If you only care about the protection of your family in case of death or permanent disability, you do not need to buy the full package life insurance. Instead, you can consider the following two alternatives to get cheaper life insurance:
– Term Life Insurance
– Personal Accident (PA) Insurance
The table below shows you how the two alternatives compare to life insurance. Life insurance and term life insurance are very much the same when it comes to death protection. The significant advantage of Term Life insurance is that it is much cheaper than regular life insurance because you do not pay for the other modules.
Personal Accident or short PA insurance is different. It does not provide financial protection from natural death or illnesses, but only for accidents. If a person dies for example from dengue fever, then Term Life insurance will pay the full sum insured and PA insurance does not.
Overview of Coverage
|#||Product Description||Financial Protection|
|Medical & Health|
|Retirement & Savings|
|2||Term Life Insurance||FULL||-||-|
|3||Personal Accident Insurance||Only death by accident||Partial||-|
Coming back to our airline example, we can compare Life, Term and PA insurance to the way Malaysian Airlines and AirAsia prices their flight ticket. Malaysian Airline is a full-service provider and mainly provides only one price. You do not need to buy luggage, meals or pay extra if you want to select your seat.
So if you do not need lots of baggage or fancy meals, then you pay a lot of money. But if you choose an airline like AirAsia, you have the choice not to buy things like luggage or meals. In the insurance world, you would buy a Term Life or Personal Accident insurance instead of full-service life insurance.
Similar to Malaysian Airline and AirAsia, insurance can also come in full package and low cost. The table below shows the price example for each of the different death protections.
Overview of Cost for a 36 year old
|#||Product Description||Cost Level||Price Example|
|1||Life Insurance||High||RM 1,200 or higher / year|
|2||Term Life Insurance||Medium||RM 149 -745 / year|
|3||Personal Accident Insurance||Low||RM 129 - 231 / year|
“You can save even more buying online”
So when you buy comprehensive life insurance part of the monthly payment goes also towards the protection for Medical & Health and Retirement & Savings. If you only want to buy financial protection for your family, then you can buy Term Life or Personal Accident (PA) insurance instead.
When you compare Life Insurance with Flying, then buying Term Life insurance would be the same as buying an airline ticket from AirAsia without luggage and meals. It is much cheaper as you saw in the table above. You can save even more when you buy Term Life insurance or Personal Accident insurance.
Curious to see how much a Term Life or Personal Accident Insurance would cost for you? Check out the below products, which we used to calculate prices for our example above.
How to buy the cheapest life insurance in Malaysia?
Understand for what purpose you want to buy life insurance/family takaful. You can ask yourself the following questions:
- Do I want to leave my family money in case of my death or accident?
- Do I need a medical card for myself or family
- Do I need help to save money to pay for something big or for my retirement?
If you said no to any of the above questions, then you could save a lot of money when you buy the element of life insurance separate.
Continue to our next article to learn how you can buy Medical & Health and Retirement & Savings separately.