You have been told that everybody needs a life insurance policy. But is this really true?
So I was 24, fresh out of college and just managed to land myself a great first job with a solid multinational company. I recently moved into a nice apartment that I shared with a friend and it was my first real taste of freedom. I was feeling on top of the world. One day my sister said to me, ‘now that you are working, you should think of getting yourself a life insurance policy’. That got me thinking, ‘of course I should! That’s what all responsible adults do!’. And I was a responsible adult, make no mistake about that!
A couple of weeks after that conversation I ended up purchasing a plan from my sister’s agent “friend”, and 15 (or so, a lady never reveals her real age) years later I am still paying for it. A plan which I know very little about other than a) It is a Whole Life Plan and b) I pay RM107 every month for the premium.
It wasn’t until my recent meeting with an insurance expert, where he asked me why I needed a life plan, that I started to question if I had made the right decision.
So is Life Insurance plan for everyone? Some insurance agents may tell you that you need one. In fact they may say everyone needs one. I have even heard of someone on YouTube saying that: “as long as you have a life, you need a Life insurance policy”. Before you decide on buying one, stop. And read the following questions to give you a better idea on whether or not you need one. You can also try our short quiz to find out if there really is a need for a life policy.
Questions you need to ask yourself before buying Life Insurance
1. Are you single?
f you are married, chances are you may have dependents who will suffer financially in the case of your unexpected death. But if you are a single, young adult, with no financial obligations and no one who is counting on you to put food on the table and roof above their head, you may not necessarily need to worry about getting a life insurance policy just yet.
Having said this, young people are advised to explore the idea of purchasing one as it is part as you may plan to have a family eventually. Also, the cost of insurance is generally lower when you purchase them while you are young and health.
2. Do you have dependents who rely on you?
Are you a parent with children who rely on you for their every need? From food to clothing, to their educational needs. Do you have parents who depend on you for financial support? Do you have a special needs child who will be under your care for the whole of his or her life? Or are you the sole caretaker a special needs sibling. Does your spouse make enough income to continue life should you face an early demise without having to make significant changes to her and the children’s lifestyle?
If you answered “yes” to any of these questions, then you need to seriously think about purchasing a life insurance. Insurance is about risk mitigation, and all that we have mentioned above are risks that you should try to avoid or at least reduce especially since they involve the people you love most.
3. Do you have unpaid debts, loans and mortgages?
Next question you need to ask yourself is do you have any unpaid loans, mortgages or debts that may burden those you leave behind should you pass on. This is one responsibility that many tend to overlook.
We may purchase a nice house, take out loans to furnish the house into a comfortable home for our family. But many of us forget that someone cosigned the loan (i.e. acted as a guarantor) and that the person will be responsible in continuing with the rest of the payment. This could be your spouse, your sibling, or your aging parents.
So even when you think that you have carried out your responsibility in providing your family with a home and some savings in the bank should you no longer be around to support them, you should think about other financial obligations that you may have that could put someone else in serious financial difficulties.
And to those young, single adults that we spoke about earlier, you may not yet have a home mortgage to worry about, but you would want to consider life insurance policy should you have taken a study loan or private loan with another person as a guarantor.
4. Are you super rich?
In other words, do you have millions in your bank account (and growing) which will take care of your surviving dependents and all other financial obligations. Or are you free from debts, with no loans, or a housing loan? You have no financially strapped dependents who rely on you, be it kids, aging parents, special needs siblings. You have no business liabilities or risks that could be passed on to those you leave behind. If you answered yes yes yes to all the above statements, then you do not really need a life insurance plan. Your should instead channel your money elsewhere for a more profitable investment.
Other points to consider
Some may advise that Life Insurance makes a good investment and retirement plan. Do they? Well in Malaysia, it does not make much sense to purchase life insurance for retirement savings especially if you are an employee. There are two reasons for this:
1. In Malaysia, you can get RM 6,000 tax deduction on life insurance premium and EPF payment. However, this RM 6,000 is already taken up by EPF payment for anyone who earns more than RM 54k a year (that’s RM 4.5k a month), so this means that there is no real tax savings. This is unlike in other countries, where additional tax savings and benefits can be attained from Life Insurance policies.
2. If you plan to use the money from your Life Insurance plan solely for your own retirement needs, you could lose out on investment opportunities that yield better returns.
In a nutshell
As said, insurance is about risk mitigation. To do this effectively you need to first understand what are the risks involved. You may discover that there is none.
Whatever your decision may be, it is always advisable to carry out your own research first or speak to a few insurance agents for further insights and clarity, especially if you do decide to buy one. You should only purchase a Life insurance in Malaysia after conducting your own research on the various products offered by at least 3 – 4 insurance providers. Life Insurance is a long term commitment, it is crucial that you have a thorough understanding on the product before agreeing to a purchase.